Now that the dust is settling on the Federal Budget announced on May 11, we can take a bit of a calculated look at it and dissect some of the outcomes a little, specifically, we’re going to look closest at the impacts on property & property investment.
First, let’s look at the numbers and overall effects of what they might mean …
Essentially, the budget sets the scene of how we recover economically and so far, we have seen faster and stronger recovery than anticipated.
The large deficits will remain a feature of the Federal Budget over the next few years but it’s too soon to talk budget repair. “One of the best ways to ensure that budget deficits will be low in the future is just ensuring that the economic recovery is sustained.” – Besa Deda (Chief Economist for St George)
With businesses among the biggest winners in this year’s Federal Budget, and SME’s (Small to Medium Enterprises) accounting for 90% of employment, it’s expected the knock-on effects will see it flow right through to job security and in turn induce consumer spending that will ultimately create economic growth.
$7.2 billion in infrastructure spending ($15 billion over 10 years). $2.7 billion for apprenticeships and trainees along with low- and middle-income tax offset, temporary asset-write-off and loss-carry back extended another year ($28.5 billion combined) means jobs, jobs, jobs.
And our economic recovery is likely to continue, underpinned by strong household spending supported by the further lifting of activity restrictions, increased confidence as general and certainty reduces, and the effects from higher housing prices.
Everyone seemed a winner in this Federal Budget!
With interest rates about as good as they are going to get and the RBA not expecting to lift the cash rate until 2024 almost everyone seemed a winner in this year’s Budget. Here are some of the property-related initiatives announced:
The Family Home Guarantee will help 10,000 single parents over 4 years to buy a home with a minimum 2% deposit.
The First Home Loan Deposit Scheme will be extended for a second year with an extra 10,000 places for first-home buyers to build or buy a newly build home with a minimum 5% deposit.
The First Home Super Saver Scheme has increased in the maximum amount of voluntary contributions to those eligible to be released under the scheme to $50k from $30k.
Downsizers over 60 are now able to contribute $300,000 to superannuation ($600,000 for couples), previously only available to Aussies over the age of 65.
BOOM, BOOM and the FOMO effect
With the fastest home value rebound in decades, house prices were back at pre-COVID levels within 8 months. In other downturns in recent decades (1980’s, 1990’s & GFC), this took 18-24 months.
Total listings are well below the average over the past five years, and buyers are snapping up available listings in record times.
HomeBuilder has underpinned a massive surge in housing approvals, but this will take some time to lift supply.
We are also seeing investors join the party.
The boom so far has been led by owner-occupiers but there are signs investors are retuning with investor lending increasing nearly 13% in March, the strongest monthly growth in nearly 18 years.
A big enticement for investors is the tightening rental market.
Rents are rising and vacancy rates are falling with only a few weak spots such as the Sydney and Melbourne unit market which heavily relies on international migration and foreign students.
Policymakers have emphasised that lending standards remain sound.
We can’t rule out the possibility of lenders tightening their criteria around high LVR and interest only loans for investors. Watch this space.
A stabilisation in growth …
Chief Economist of St George, Besa Deda is predicting 15-20% growth in house prices this year, followed by 5% next year. When questioned on whether she sees a housing bubble her response was that she can’t see a bubble but more of a stabilisation in growth.
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