Billionaire Solomon Lew says there is some danger for property buyers in the sharp rise in house prices, but that record-low interest rates are unequivocally good for businesses.
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Billionaire Solomon Lew says there is some danger for property buyers in the sharp rise in house prices – but he says record-low interest rates are unequivocally good for businesses.
Mr Lew, who sits at No.17 in the BRW Rich List with an estimated personal wealth of $2 billion and was a board member of the Reserve Bank of Australia from 1992 to 1997, has built his empire on retail businesses but also has extensive property holdings.
Asked on Friday if he thought there was a house price bubble, Mr Lew said foreign investment and record-low interest rates had helped push up house prices sharply, so there was some danger now for buyers.
"Is there some kind of danger? Potentially yes," Mr Lew said. "Foreign investment has pushed prices a lot higher." And an extended period of low interest rates had pushed house prices up substantially.
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Mr Lew was speaking to journalists on a conference call for retailer Premier Investments, which on Friday announced a robust 26 per cent rise in net profit after tax to $71.5 million for the first half of 2015-16.
Mr Lew is chairman and controlling shareholder of Premier, which runs chains including Smiggle, Portmans, Just Jeans, Peter Alexander and Portmans.
He declined to give an opinion on what the about-face by the federal government on the introduction of an "effects" test to limit the power of big business would have on companies.
But he said Premier's own retailing chains had experienced improved consumer confidence in the six months to the end of January, and he was a big believer that low interest rates were an important driver for confidence and should inspire businesses and companies to invest more.
"They've never been as low," Mr Lew said, referring to the 2 per cent official cash rate the RBA has had in place since May 2015. The United Kingdom has had a cash rate of 0.5 per cent set by the Bank of England since 2009.
Debate has been raging in Australia about whether Sydney and Melbourne in particular are in the grip of a house price bubble, with some offshore hedge funds targeting Australian banks because of their large exposure to the housing market in a phenomenon that has been dubbed the "Big Short" – but JP Morgan warned that pursuing that trade was a potential "widow maker" – a term used in the markets for a poor bet.
A report by Jonathan Tepper that predicted an Australian house price crash triggered immense debate about whether Australia could remain immune from severe house price falls in other countries in the wake of the global financial crisis.