Australian government lack of commitment can be divisive for the market!

Australian Property Crash

In the backdrop of UBS data, market participants have started discounting a drop in the real estate sector as they see a top having had emerged.  While the data perpetuates falling prices, it does not see at a rate as fast as the drop in activity; thus disproportional to sales.  Retrospectively the housing market has been the mainstay of the economy and has outstripped the rate of growth of the economy by a healthy 6%.  Stating the variables that have led to this are mainly state and local planning regulations, allowing for superannuation, foreign investment rules, all have played a fair share in making the market to grow at an impressive rate of 12.9%.  From a primary cyclical level, the housing market has been growing for 4 consecutive years, and now an approaching peak has the potential to send shudders.  UBS has underscored that demographics are not mitigating the risk in the economy because household debt is reaching a level of unsustainability.  This risk of collapse would be severer in impact for the median income holders who normally have all their investment tied up in a single asset rather than high-income owners who have the flexibility to diversify their portfolio.  Further, these risks remain heightened on the consequence of an interest rate hike by the RBS, in an effort to normalizing them and moving away from abnormally low rates.  This then could position the housing market on a precipice, which would give rise to speculation and lead to market volatility while setting it up for a collapse.
As stated earlier, that a housing downturn will not affect investors equally; there is a political dimension to its performance as well.  Housing analysts are of the view that it would be imprudent for market dynamics needlessly influence a market when government regulations have actually played a protectionist role.  In an effort to keep the market stable Murray financial inquiry has proposed addressing negative gearing, capital gain tax concessions and borrowing on superannuation funds.  Polls have been somewhat divided as 54% of the respondents have favored tax breaks, while 28% have not.  Further, acquiring superannuation by first-time borrowers has not won widespread popularity.  Analysts feel that the government has also had to bear its fair share of the burden, as analysts have been rather skeptical of the decision by the government to stay silent on such an important matter.  For example, they could have easily addressed it and affected affordability via the supply of land, ameliorating infrastructure costs and reducing commercials cost for making transactions.  Rather the government has been reticent, slowing reacting to the market needs, as each governmental layer has acted alone trying to address smaller pie of a big problem.  They should have rather acted cohesively to be more effective in addressing the market needs.  But there is a sense of clarity in government stance, as it is not escalating any expectations on a housing affordability package in the upcoming May 9th budget and this is yet another sign of bearish precedence gaining in the market.


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