Reasons to be Optimistic Post-Election and Post-Budget
BY GEORGE BOUGIAS, NATIONAL HEAD OF RESEARCH, OLIVER HUME
The events of recent months and how the property market performs over the next year will one day make for a fascinating case study in the power of public policy and its ability to drive consumer sentiment and buyer behaviour.
budget with the State Government revealing it expected a $5.2 billion hole in revenue from stamp duty over coming years due to a softer outlook for the property market.Unveiling the budget Victorian Treasurer Tim Pallas said that, while the Government expected further falls in stamp duty receipts in 2019-2020, it was forecasting a near 6% rebound in stamp duty revenue in 2020-21 due to a projected recovery in the property market. With the budget heavily reliant on property, any fluctuations in the market can have consequences for a range of programs.Despite the hit to revenue the Government is pushing ahead with a host of infrastructure investments and spending programs to help deal with the State’s record population growth. The Government’s infrastructure investment will reach $14.2 billion in 2019-20 and will average $13.4 billion a year over the Budget and forward estimates.There will be no change to the first homeowner stamp duty concession.At the same time the Victorian Government was dealing with the consequences of a slowing market and being cautiously optimistic about a turnaround, the surprise results of the Federal election and some welcome contributions from the banking regulator, the Australian Prudential Regulation Authority (APRA), and the Reserve Bank of Australia (RBA) swept through the industry and market.The combined effect of these changes has seen many people become increasingly optimistic. Here is a snapshot of some of the issues which will underpin the changing mood across the sector.Loan Serviceability – APRA recently announced it was aiming to remove the rule that obligates lenders to assess borrowers on their ability to pay their loans using the higher of either an interest rate floor of least 7 per cent or a 2 per cent buffer above the loan’s interest rate.Essentially, APRA was instructing the banks that people applying for a loan needed to be able to service a loan at a much higher interest rate than what they would pay.This meant many people who were potentially capable of meeting their obligations were not successful in their applications.In contrast, APRA has now proposed that lenders would be permitted to set their own minimum interest rate
floor (in serviceability assessments) and that lenders’ serviceability assessments include an interest rate buffer of 2.5 per cent.
Lower interest rates – The RBA has recently announced its decision to lower the official cash rate by 25 basis points to 1.25 per cent. This is a record low and should help stimulate demand for borrowing. More recently, the Governor of the RBA has hinted at potentially lower interest rates noting that although the RBA Board “has not yet made a decision…it is not unreasonable to expect a lower cash rate.”
Lower taxes – Some property investors held off making their investment in anticipation of higher property taxes.With the property tax regime stable these property investors may decide to enter the market.
First Home Loan Deposit Scheme – In the last few days of the campaign the Prime Minister announced a First Home Loan Deposit Scheme to help first home buyers into their first home. Under the scheme the Federal Government will assist eligible first home buyers purchase a dwelling. First home buyers will require only a 5% deposit and could save borrowers about $10,000.This is the cost of lenders mortgage insurance which protects lenders from defaults.
Low Vacancy Rates/Strong Population Growth – Many of the fundamentals that underpin a strong property market are often forgotten when buyers are focussed on risks and downside. In many markets around Australia vacancy rates remain low reflecting robust demand relative to supply. This has been driven, in part, due to near record population growth.
In Victoria, Melbourne and the large regional cities continue to grow at near record rates. As outlined in the recent Victorian budget, the State Government expects Melbourne’s population growth will moderate over the medium term but will still average between 1.8 per cent and 2.10 per cent over the period 2018-19 to 2022-23.This is considerably higher than the long-term average of 1.3 per cent.
These forecasts suggest recent population growth, which has reached record levels in absolute terms, should continue. For example, in the decade to 2007, the state added around 58,000 new residents a year. This rose to around 106,000 a year over the period 2008 to 2014.From 2015 to 2018, annual population growth was around 141,000.
Continued robust population growth will help ensure Melbourne becomes Australia’s largest city, potentially,before 2030.
ABOUT OLIVER HUME PROPERTY FUNDS
ABOUT OLIVER HUME PROPERTY FUNDS
Oliver Hume Corporation is one of Australia’s most reputable residential property funds and real estate services groups.For over 60 years, they have helped owner-occupiers and investors achieve their property and investment goals.
Oliver Hume Property Funds manages high-quality property developments, with strong profit and return forecasts founded upon quality research and backed by an extensive,thorough and rigorous due diligence process.
By bringing investors together and pooling their capital,they can achieve a critical mass they can’t always reach individually. Investors can access large scale residential property developments and attractive returns without the stresses and uncertainties of doing it themselves. For more information go to: www.oliverhumepf.com.au