Australia’s real estate boom headed toward a ‘dramatic and destabilising’ end

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The Organisation for Economic Cooperation and Development (OECD) has warned Australians of an impending property market crash, saying that Australia’s households should prepare for higher interest rates come 2017.

“Domestically, the unwinding of housing market tensions to date may presage dramatic and destabilizing developments, rather than herald a soft landing,” the OECD’s latest report said. “Uncertainties on future economic policy ahead of the Federal election are also adding a degree of risk.”

As a result, the Paris-based economic organisation called on the federal government to push for tax reforms and make them “a core element of structural policy.” This can be done by making greater use of GST and land taxes.

“Australia’s exposure to commodity market developments, particularly those linked to the Chinese economy, remains an important source of uncertainty and risk,” the OECD further warned.

As for the cash rate, the OECD is positive that the Reserve Bank will start raising it come next year. Just early last month, the Reserve Bank cut the cash rate to a record low of 1.75 per cent.

The OECD’s latest growth forecasts showed an annual GDP rate at 3.1 per cent as of March. It also expects growth in calendar year terms will gradually strengthen towards three per cent in 2017—well above its growth average forecast of 2.1 per cent. These figures assume no more interest rate cuts this year, as well as rate increases by 2017.

However, the OECD acknowledged that “Room for further rate cuts remains in the event of below par growth.”

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