Stronger than feared profit results and reasonable economic data in Australia, which are consistent with a rebalancing of the economy away from mining, are among the factors steering Australia away from a recession. Shane Oliver discusses this, along with the risk of a property crash and Australia’s declining negative gearing numbers.
Australian property update – negative gearing numbers Declining tax claims due to negative gearing in Australia are largely a result of low interest rates relative to rental yields. In other words, the benefit of negative gearing has somewhat declined. There is a broader issue at play however, which is the political debate proposing to restrict negative gearing tax concessions to only new properties.
Are we heading for a property market crash? Australian housing is expensive relative to incomes and rents. And household debt ratios are high. So yes, there is a risk of a sharp drop in property prices at some point. However, this is unlikely unless we see much higher interest rates or a surge in unemployment in the context of a recession. The foresight of the Reserve Bank and what has so far been a successful rebalancing of the economy in the face of the mining downturn mean that both of these scenarios seem unlikely at present. We’re going to see a 5-10% fall in property prices at some point in the next few years but at this stage it’s unlikely that we’re going to see a property crash.
How have company profit results turned out? The latest round of profit results reported by Australian companies related to the December half of 2015 and given recent sharemarket falls, these results have proven to be better than feared. Although resourcing companies saw big falls in profits and cuts to dividends, this was not surprising. More importantly, the remainder of results were reasonably good and showed decent profit growth.
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