SINCE the Government announced it would make available at least $2billion of taxpayers' money to bail out commercial property investors, there has been much thrashing about as to the rationale underlying this surprising decision. Perhaps the most curious defence was offered yesterday by the ordinarily conservative economist, Ian Harper.
Harper claimed the Government's action was motivated to forestall a rout in commercial property values that would spill into the housing market: "If there is a major collapse in asset prices in the commercial property market, that could feed through into domestic housing" because the two markets were "too close for comfort".
The good news: Harper is wrong.
Residential real estate and commercial property are as related to one another as infrastructure is to equities. For a start, the residential property market is far larger than the commercial property market. The total value of all listed and unlisted commercial property in Australia is only 7.4 per cent of the $3.4trillion housing market, according to UBS.
The difference between the two markets is also borne out in the lending aggregates: whereas there is about $990billion worth of home loans outstanding, there is only $165billion worth of commercial property debt.
©The Australian