Michael Drapac, a real estate developer, said continued Asian investment in Australian property, particularly from Chinese buyers, was the only way to save the local market from "catastrophic" destruction.
The founder and chairman of Drapac Capital Partners has long predicted a sharp fall in house prices, particularly in Sydney and Melbourne, and while Asian interest in investing in Australian properties will avoid an "awful" outcome, he still expects an overall 30 per cent adjustment in house prices.
His comments came as figures from the Australian bureau of statistics this week showed the number of apartment approvals fell in November to the lowest level in five years, led by a fall of 26 per cent in Victoria and 15 per cent in New South Wales.
The NSW real estate board reported a 22 percent drop in industry confidence over the past 12 months.
Mr Drapac, 63, said the local market had been "on borrowed time" for at least two years and said a major adjustment was inevitable.
He said tougher lending standards from Banks and record household debt would only worsen the situation.
"Our market prices were absurdly high and eventually the mood and behaviour started to change," Drapac told the Australian weekend.
"The market has corrected a little bit, but I think it has a long, long way to go. The market is completely out of control, and absurdly overpriced, as any number of metrics will tell you.”
"If you have seen what's happening in 2018 and will see what's going to happen this year, and the fact that there's not going to be any growth for four or five years, I think we're going to see an overall correction [in house prices] of 30 percent from the situation at the beginning of last year."
Property prices in Sydney fell almost 9 per cent last year. And the property prices in Melbourne fell 7 per cent (this does not represent the overall ups and downs in Australian property market).
A similar decline is expected this year, but Drapac said it would have been even steeper had it not been for Chinese investment, which has slowed significantly after the communist government clamped down on how much money might flow out China.
Juwai, a Chinese real estate portal focused on overseas real estate, estimated the number of Chinese investments in Australia's property market fell 27 percent in 2017.
Of the $17.4 billion invested by Chinese in 2017, $14.1 billion was invested in residential property. Juwai found Australia ranked second in terms of the number of queries of property, just after the United States.
"If we don't have Chinese backing for our market, then the impact will be terrible, but I think Chinese and Asians will continue to come to Australia and make this correction less painful," Drapac said.
"If the Chinese government comes out with a policy that prevents people from bringing money to Australia, then our market will be destroyed."
Drapac said many professionals in the industry were in denial about market conditions and unwilling to admit they had "bought lemons".
" All people don't want to face the reality in any investment boom," he said.
"First of all, you will hear more and more news that developers are in trouble. They will face a lot of trouble, because real estate development is subject to the huge leverage, which is except from the leverage of loan.
"All the pseudo-experts say the market will return to a commercially sustainable level. It isn't and it never will. When the overvalued or undervalued market is corrected, it will never go back to the sober, rational and explainable market. They are always overcorrect.”
"I think all the experts understand very wrongly, if they think it's just a return to some rational value, they're dreaming."
Andrew Antonas, the founder of Matrix, is one of NSW's largest sellers of residential development land, with at least a dozen large residential developments on the market.
The Australian reported last week that Chinese developers were being forced to sell because of a lack of financing, leading to a flood of real estate development lands in east coast entering the market.
Andrew Antonas, one of the biggest sellers of residential developments in NSW, has at least a dozen large sites on the market.
Many Chinese developers have already sold projects.
Drapac, keenly aware of historical trends, has made a great fortune by buying distressed assets at the bottom of the housing cycle. After the global financial crisis, he looked down on the popular view and repeated investment in the United States, and he currently has more than $600 million in assets which are mainly in Denver, Chicago, Atlanta and Philadelphia.
Drapac, who divides his time between Melbourne and its US headquarters in Atlanta, said he planned to develop some buildings and estimated that the sales and supply will be more than $3 billion over the next six years. He sold all on the Australia market in 2011, because he thought the risk was too big, and said he had no intention of repurchase in a short time. "Signs of entering the market is easy to understand... When you start to see very few developments, "he said. "I tend to get in before anyone else and leave before anyone else."