Australia foresees weaker house prices

By BLOOMBERG

SYDNEY • Australia is likely to see weaker property prices and diminished productivity under policy proposals by the Opposition Labor party that’s on track to win the government, said Royal Bank of Canada (RBC).

House prices could fall 15% under plans to curb property investment tax breaks, while proposed changes to other investor perks could shave up to 0.2% from annual consumption, Su-Lin Ong, head of Australian economic and fixed income strategy at RBC, said in a research note. A general election must be called by May at the latest.

“We expect a small negative reaction from the currency and equity markets to a change of government,” Ong said in a research report. However, the economy should still see “ongoing Australian fixed-income outperformance against much of the dollar bloc, especially the US, and a lower Australian dollar”.

Australia’s conservative government has trailed in most opinion polls since its 2016 re-election and lost one of its safest seats in the country last weekend amid a deepening voter backlash.

Like administrations of both sides over the past decade, the government is riven by infighting that’s seen two leader changes since its election in 2013, with Saturday’s by-election triggered by the ouster of former Prime Minister Malcolm Turnbull.

Labor’s policies hew to a traditional line of higher taxing and spending to finance additional spending on areas like education and health. However, that doesn’t imply a deteriorating budget bottom line, with the party’s finance spokesman Chris Bowen promising to deliver larger surpluses than the incumbent Liberal-National coalition.

On housing, Ong said it’s possible prices won’t fall as much as her estimate through 2020, as regulators could ease macro-prudential measures; or the Reserve Bank of Australia could extend its interest- rate pause; or hiring might intensify and wages unexpectedly accelerate.