Well, the election wait is finally over and after what seemed like a never ending battle of the fittest, the campaigning is over, and life goes on. A change of the guard leaves many wondering what the future holds. In terms of property, the policy which will be given the green light is the Help To Buy Scheme which we discuss in more detail. The Super Home Buyer scheme spruiked by the Coalition is likely to be scrapped but worth elaborating on.
Property is always a hot topic, primarily during an election period be it Federal or State, and as one of Australia’s top revenue generators, it plays an integral part in keeping our economy strong. The value of residential real estate currently sits at approximately $9.98 trillion dollars. Not a bad sum underpinning Australia’s wealth!
The sceptics would argue that policies surrounding property are ultimately about how to get more money into the Government coffers, masked brilliantly by portraying the idea that somehow, these policies are aimed at providing more affordable housing options and allowing more people access to live out the great Australian dream. What is not discussed however is how these policies can have the opposite effect by causing uplifts in property prices making property even more unaffordable.
While we wait for the finer details, let’s take a closer look at both schemes.
Super Home Buyer Scheme would allow eligible Australians to unlock up to 40% of their superannuation (capped at $50,000) to put towards purchasing their first home. In the even the property is sold down the track, the monies borrowed including any the capital gain must be returned to the fund.
This scheme is only available to first home buyers and to qualify, you’ll need to tick the following boxes:
- You must have saved at least a 5% deposit.
- There are no income caps
- The scheme is available to each person in a couple so long as they are eligible
- Can be used to purchase a new or existing home
- Can be used to purchase a property of any price
So long as the property bought performs well over time, is not a bad proposition as it would have allowed access to funds locked away to be best utilized for the purpose of purchasing a home. The question remains as to how many first home buyers would have been in a position to take full advantage of this scheme.
A report by CoreLogic points out that Australians aged between 25 and 34 have on average around $25,000 in super. Under the proposed scheme, this cohort could only access $10,000 to put towards a home.
To be able to withdraw the maximum amount of $50,000, someone must have a superannuation balance of $125,000, meaning the main beneficiaries of the scheme would likely be Australians on higher incomes.
Help to Buy will allow 10,000 households a year the opportunity to co-purchase a home with the Victorian Government, which would reduce the deposit hurdle and their mortgage repayments. It has a minimum 2 per cent deposit and an income cap of $90,000 for singles and $120,000 for couples.
Under the scheme, the government will make an equity contribution of up to 40 per cent on purchases of new homes, and up to 30 per cent on purchases of existing homes.
What this ultimately means is the government will own a portion of your property and can claim its equity and share of any capital gain if the home is sold. Homebuyers can purchase an additional stake in the property when they are able to do so.
Many questions are to be answered here, such as what happens if the property is sold, and no capital gain is made because it was a poor performing asset? What happens in the event that the principal owner (the purchaser) adds value to the property by way of undertaking renovations or cosmetic improvements, how is the capital improvement split at the time of the sale? What happens if the family household incomes surpass the income cap?
To qualify for the scheme, you’ll need to tick the following boxes and the price of properties will be capped across states and territories.
- You must be an Australian citizen
- You must be at least 18 years of age
- You must not own any other property or land in Australia or elsewhere
- Your income must not exceed $90,000 if you are an individual and $120,000 if you are a couple
- You must intend to use the home as your principal place of residence
- You must have a deposit of at least 2 per cent of the property’s value
- You must qualify for the remainder of the purchase price through a home loan with a participating lender.
While we give merit where it’s due both schemes have their pros and cons. However, what we are more than likely to see is a surge in property prices once again as demand will increase putting more pressure on already low stock levels.
Fear of missing out seems to have turned from buyers to sellers as vendors rush to do a deal before interest rates rise again. Over the last few weeks, we have seen an increase in listings with agents more willing to negotiate a reasonable outcome as confidence was sucked out of the market.
The start of the downturn may mean that we will see a busy winter ahead. We usually expect lower volumes in the colder months, however with further interest rates rises expected to hit mortgage holders by the end of the year, vendors are urged to sell now while conditions are still relatively strong.
As the Reserve Bank raised the official cash rate by 25-basis points for the first time in more than a decade in a bid to curb inflation, uncertainty in the market mounts. While the prospect of further rate rises seem daunting for many, other seasoned campaigners who have experienced past rate rises and are and well versed with property ebbs and flows will be quick to seize the opportunity and welcome less competition in the market.
Buyers who are pre-approved and sitting on the side lines for the market to cool further are subjecting themselves to a decrease in borrowing power as with an increase in rates reduces borrowing capacity which will have a significant effect on where and what they are able to buy.
A recent Financial Stability Review conducted by the RBA estimated that a two percentage point increase in mortgage rates would reduce real housing prices by 15% over a two-year period.
The term ‘real’ here is important to note as it means if inflation is cumulative at 5% over a two year period, price levels will only be lower by 10 percent, taking prices back to 2021 levels.
Property prices continue to lose steam as interest rates mount. Melbourne, Sydney and Hobart have hit their first quarter of negative territory since the extended lockdowns of 2020. While values are still rising across all other states, a recorded 0.6 per cent growth is the lowest reading since October 2020.
Although the monthly growth rates remain higher in other states, the trend rate of growth is easing with Adelaide at 1.9% growth in April, followed by Brisbane (1.7%), Canberra (1.3%) and Perth (1.1%). We may have also seen the peak in regional areas as signs of slow down are becoming evident however expect that regional markets will be somewhat insulated from a material downturn due to an ongoing imbalance between supply and demand. Advertise stock levels remain extremely low compared to capital cities.
Auction activity was down quite considerably across the combined capital cities leading up to the election and we saw also saw a significant reduction of new listings where new listings in Melbourne falling by 25.4 per cent in April 2022.
Properties online saw an increase in days on site with the median for properties sold in April 2022 rising slightly to 29 days. In regional Victoria, days on site rose from 37 days to 40 days over the month however, that remained lower than the 42 days a year ago.
Eight suburbs across Melbourne saw a recorded 100 per cent clearance rate, led by Wantirna and Bayswater. At a suburb level, Reservoir again takes out first place for the month with 46 reported auctions followed by Glen Waverley (45) and Craigieburn (44).
Property Management Update
Cold and wet weather is not enough to dampen the spirits of the Property Management team hear at Buyers Advocate. From routine inspections to open homes and all that falls in between, Rachel and Liz are filling their days with training and bettering the software and process’s here at Buyers Advocate.
Rachel and Liz are back out on the road conducting physical routine inspections which they are very happy about. Renters are happy to see the girls and taking advantage of welcoming them into their homes. A reminder that with the cold / wet weather here, it is recommended to have gutters cleaned at least every 12 months. Keeping on top of this can prevent unwanted water leaks from occurring. If you would like this actioned at your property, please do not hesitate to let the girls know and they will arrange it for you.
Our team have been attending training again this month on the compliance and minimum standards. Knowledge learned at these sessions is shared with our Buyers Advocate team so we are all across the changes and what they mean to our industry.
A friendly reminder that all safety checks and repairs, maintenance & improvements to your investment property are tax-deductible and can assist in reducing your overall tax payable.
If we can assist you in managing your investment or to arrange an assessment of your property contact us (03) 9818 4499.
The changing market conditions continue to be challenging however we continue to deliver great results for our clients. Here are a few below:
Home Buyer Purchase – Brighton
This board room auction saw six registered bidders fight for the keys to this extremely rare opportunity to purchase two townhouses on the one title. A strong opening bid of $2m from Buyers Advocate followed by quick counters bids from two other parties saw the price quickly go to $2.3m. After a solid fight we secured the keys for our clients to this rare gem in a highly sought after suburb.
Home Buyer Purchase – Canterbury
Working in our client’s best interests, this one was almost one we missed out on securing.
A simple phone call from the selling agent indicating that the other party had not yet “come to the table with their offer” and it had some loose ends to it, we pounced and secured the keys in-line with our original offer we put forward.
Tip Of The Month: Questions to ask before buying your next investment property
Property investment can be exciting and a reliable strategy to grow wealth and a means of securing financial freedom for many. A good investment property and strategy takes thought, planning and having the right team onside.
To help avoid making the wrong decision, it’s imperative that you know your investment strategy and outcome. Asking yourself some simple questions before buying just any property will return dividends.
- What is my long term strategy?
- Is this an investment grade property?
- What is the property worth?
- Where am I getting my data from?
- What will my rental yield be?
- Does this property meet the minimum rental standards?
- Am I emotionally invested in this process?
- How do I know whether this property will outperform the market?
- What is happening in the area that could have a positive or negative impact on future growth?
- Is there something about the vendor that provides an opportunity here?
- There are many steps to ascertaining value and what makes a property an investment grade property. The property purchased must be inline with your investment strategy and emotions must not come into play when it comes to an investment property.