The nation’s housing market, particularly in Sydney and Melbourne, is at risk of “renewed overheating”, the International Monetary Fund has warned, urging governments to overhaul property taxes including negative gearing.
In its annual review of the Australian economy, compiled before the coronavirus outbreak, the IMF said it expected a continued “gradual” recovery, albeit with several downside risks including the summer’s bushfires. Since then, the epidemic has forced the IMF, OECD, Reserve Bank and federal Treasury to downgrade their forecasts for the local economy, with most expecting a 0.5 percentage point hit in the March quarter.
But the fund’s report highlights longer-term issues it believes need to be addressed, including broad tax reform, while urging governments not to tighten their budgets given the possible risks facing the country.
The IMF said actual house prices in Australia were 7 per cent above a debt-service-to-income ratio of 25 per cent, which is considered a reasonable level of debt.