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With 45 years in the real estate business under his belt, even a veteran like Peter Nicolls is stunned by how hot the market is right now.

As Australia's property market continues to skyrocket, fuelled by pent up demand and a shortage of stock, analysts are beginning to wonder just what will put the brakes on this juggernaut?

KR Peters Director Peter Nicolls believes there are three key factors that could relieve the pressure valve and take some heat out of the market.

With 45 years in the real estate business under his belt, even a veteran like Mr Nicolls is stunned by how hot the market is right now.

And he is not alone in voicing concern about a potential property bubble.

Traditionally, the Reserve Bank has stepped in to avoid the property market overheating by pulling the lever on interest rates.

However, this time around the bank has backed itself into a policy corner with Governor Philip Lowe's statement that interest rates are likely to remain at historic lows for the next three years.

"The Reserve Bank has put itself in a precarious position when it came out and said interest rates would remain low for 3 years. They now can't put interest rates up because people will say they factored in low rates when they bought. I think it will come back to haunt them," said Mr Nicolls.

With the Reserve Bank's hands tied, just who or what will pull on the handbrake?

"There is a need to put the brake on because when Covid lifts and the doors open and we get immigration again and Australian citizens stuck overseas return it will create even more demand," predicted Mr Nicolls.

One possible solution is if the banks increase the deposit needed by home buyers. This is the approach being taken in New Zealand.

Mr Nicolls recalls that when he bought his first house in 1977, banks would only lend 80 per cent of the purchase price or four times a borrower's average monthly savings.

He believes in 2021 lenders could adopt more prudent lending criteria.

"One of the best ways to slow the market is to force buyers to lay down more equity or genuine savings and restrict the amount they can borrow."

Mr Nicolls said a lending regime whereby buyers can only borrow 70 to 80 per cent of the value of a property would be a "fair way to move forward".

"When the banks changed their lending criteria several years ago they wanted applicants' detailed spending habits which basically brought lending to a standstill. It restricted buyers by about $100,000 in buying capacity.

"If they restrict or tighten lending conditions from the way they are now the market will still be healthy.  The momentum is out there."

He said another factor that could slow the market is vendor greed.
"Vendors raising their expectations is forcing prices to go up 10 to 12 per cent. If a vendor was asking $1 million, they are now suddenly thinking 'I could get $1.1million'."

A shortage of stock was exacerbating the problem.

"Some agents are going to the vendors, quite honestly in a rising market with pent up demand, and telling them they can achieve exceptional results and it's happening.

"Slowing down vendor greed will help slow prices."

The third factor that could slow the market is if and when the federal and state governments stop pumping free money into the market.

"The government needs to play its role in avoiding a bubble, which they don't want," Mr Nicolls explained.

He said incentives like the HomeBuilder grant and stamp duty concessions, which are due to end in the first half of this year, had set deadlines in many buyers' minds.

He said grants and incentives played an important role in affordability and supporting the construction sector, but the temperature at which they are set had to be just right.

"The government has turned the tap on full steam, they can't seem to get the temperature right."

Getting the temperature of the property market right in 2021 will be crucial in determining if the market simmers or continues to boil and maybe even boil over.