PROPERTY BUBBLE TALK 'OVER THE TOP'

BT FINANCIAL Group economist Dr Chris Caton has weighed into the property bubble debate, dismissing media speculation on the matter as 'over the top'.

Caton (pictured), in an address hosted by financial services firm Crowe Horwath on the Gold Coast, concedes Australian property prices are expensive by world standards, but 'not massively so'.

"Prices have been rising rapidly in Sydney and Melbourne, 16.7 per cent and 14.2 per cent respectively over the year to September 2015," he says.

"Brisbane's rise has been more modest and sustainable at 4.5 per cent, which is below the national average of 11 per cent, a figure which reflects the overheated south-eastern state markets.

"Media talk of a housing bubble is a little over the top. Australian house prices are expensive by world standards but not massively so."

Caton says despite the challenges facing the Australian economy, the outlook is 'somewhat positive', and he sees a turnaround in the underperforming Queensland economy helping to drive that growth.

"Much of the world economic conversation centres on two issues: China - can the Chinese government manage the slowdown in growth - and US interest rates.

"We think the risks associated with the Chinese situation have been overstated and there is no doubt some of the data coming out of there is confusing.

"The issue is how seamlessly or otherwise does the Chinese economy transfer to a consumer-led phase.

"As for the US rates, it is looking increasingly likely that any rise will not occur until 2016."

In the meantime, Caton says low interest rates and the slide in the Aussie dollar will provide sufficient support for the domestic economy as it adjusts to the commodity bust.

"The non-mining sector has been sluggish but is slowly on the mend," says Caton.

"The bright spots on the domestic front have been professional services, health and accommodation.

"Inflation is not an issue and we are expecting the RBA to keep rates on hold at least until the end of the current financial year and we are forecasting the Aussie dollar at US70c at June 30, 2016, which represents around fair value to us.

"There is no question investors are challenged by the current economic environment. We are in a low yield environment globally and share market volatility has increased.

"The Australian equity market is neither cheap nor expensive in our view.

"Having said that we are forecasting the ASX 200 to complete the calendar year at 5400 and the financial year at 5800, but we think world markets still look better value than the Aussie market.

"From a yield perspective, equities still offer better returns than the alternatives."