The election has returned a majority coalition government, and so the spectre of Labor’s tax reform agenda is now dead and buried. People in the property sector have expressed relief, and the view that things will continue as before. However, there will be some changes. The main policy initiative of the government, announced during the election campaign, was to offer a fixed number of first home buyers access to finance enabling them to fund a deposit with only 5% of the purchase capital. The policy is intended to enable first home buyers to access the market and buy their own home sooner.
At a state level, the government has announced an extension of the $20,000 First Home Builders Grant for another year. The grant was doubled to $20,000 in the 2016/17 State Budget, and was meant to operate for a limited time. That time has now been extended, and with $100 million already spent over the last 4 years, a further $12.7 million, enough for over 630 payments, has been allocated in the budget. These two measures will encourage greater interest in the property market, and in the building of new homes. There does seem to be some overlap between the two policies, and whether that will continue is unknown. Some concern has been expressed that demand is far greater than the available supply, and that the policy still requires homes to be built and therefore the builders to build them. The State government has also recognised that homelessness has become a serious issue, and has now decided to allocate $68 million in the current budget to provide more affordable housing stock. Details at this stage are scant.
Figures suggest that the market in Tasmania is softening, but nowhere near the level being experienced elsewhere, and demand for housing stock is ensuring the market remains buoyant. However, residential property prices have dropped markedly in the two major mainland states, and are continuing to fall. There is now significant concern being expressed as to the effect on the economy overall. Two other matters have been flagged that could have significant implications for the property market, nationally and here. The first is the suggestion that the RBA will drop the cash rate next month (June) and possibly decide on a further reduction in August. The Governor of the RBA has made noises to the effect that this may be a “good thing” for the economy. A lowering of interest rates by commercial institutions will stimulate buyers and also potentially reduce investment return benchmarks that buyers are seeking. The second is the suggestion by the banks’ governing body APRA that the requirement for a 7% minimum interest rate serviceability buffer” for mortgage borrowing could be lowered. In the past, APRA has regarded the 7% rate (or cap) as allowing for an appropriate buffer between the RBA’s cash rate and the lending institution’s mortgage rate.
The general view is that the buffer needs to be only around 2% in the current climate, and as such there is room for an easing in the loan rate by removing the cap. These two moves will no doubt create greater interest in the property market and encourage potential home buyers and investors to become active participants. With all of this happening in the next month or two, we remain optimistic that the property market will remain in positive territory.