In an official report, IMF analysts warned that segments of the Aussie property market were facing “acute risks,” and pointed to a range of measures regulators could expand upon to reduce borrowing, which risked pushing already astronomical prices up even further.
First, IMF analysts recommend that bank regulators redouble their efforts to curb high-risk property market lending, including setting higher standards for borrowers’ debt-to-income ratios and possible loan-to-valuation limits.
Second, they recommend that APRA assess the market more closely and target specific segments that are particularly at risk of a bubble. Risks could be reduced by potentially curbing certain categories or loans.
Third, they want the federal government to consider winding back tax breaks, such as negative gearing, because they distort the property market.
The team has once again voiced concerns about Australia’s unusually favourable tax treatment for property investors.
Thomas Helbling, mission chief of the Australia-New Zealand division of the IMF, said there were questions about how effective these tax benefits were in delivering social goals, such as homeownership for younger Australians.
“These incentives tend to benefit higher-income households…and tend not to benefit first-time buyers,” Helbling said at a briefing in Sydney last Tuesday.
Despite the implied criticism that the tax benefits were unfair, Helbling was reticent to name specific tax measures that were most to blame, suggesting that the solution to the issue was for the government to determine. “If you remove one incentive, you don't want to create distortions [elsewhere],” he said.
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