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New government, new property policies

May 28, 2022 |GODFREY DINH

Australia is experiencing its first change in government in 9 years.

Naturally, there’s some uncertainty hanging in the air about how property investors could be affected.

Let's explore how a Labor government could impact the property market.

  • A tight rental market and surging rents are placing property investors in a good position, despite some investors having bigger debt.
  • Property prices across the nation are outpacing wage growth by almost 7x, though this could slow as the unemployment rate hits a 48-year low of 3.9%.
  • A Melbourne tenant has inherited a two-bedroom unit, which she had rented for 23 years, from her late landlord.

Facts of the week

Source: CoreLogic, Australian Bureau of Statistics

  • Stamp duty revenue for state governments was up by 25.7% to $23.97 billion in the 2020-21 financial year, according to a CoreLogic analysis of Australian Bureau of Statistics data.
  • Property taxes accounted for 51.7% of all state and local government revenue during the same period. Property taxes include:

- stamp duty
- land taxes
- municipal rates and other taxes

Diving Deeper

  • Former Prime Minister Scott Morrison had previously unveiled new first homebuyer measures, including the super-for-housing policy, which would have allowed purchasers to dip into their retirement savings to buy a home. This is officially off the table with the new government.

  • Instead, Labor’s proposed Help to Buy scheme is on the cards. It’s a shared equity arrangement designed to help buyers purchase a home sooner through a government co-contribution. Under this scheme, eligible buyers can enter the property market with a deposit of as small as 2%, without needing to pay LMI. They’ll still be responsible for other costs like stamp duty and legal charges.

  • The government will chip in 40% of the purchase price for new builds and 30% for established properties. This means the homebuyer would own 60-70% of the property’s value, while the government would own the remaining 30-40%. The homeowner has the option to ‘buy out’ the government’s stake of the home, in portions of at least 5%, to increase their ownership proportion.

  • When the homeowner sells the property, they have to pay back the government’s 30-40% equity, along with the value uplift on that portion of the property.

  • The program is restricted by price caps, which vary from $400,000 to $950,000 depending on the state/region. The incentive is only available to Australians who don’t currently own a property and earn up to $90,000 for individuals or up to $120,000 for couples.

  • The Albanese government will also establish a new National Housing Supply and Affordability Council, which will be focused on boosting the supply of homes to improve affordability.

  • Previously announced initiatives set to continue under the Albanese government include:

- Super concessions for downsizers aged 55+

- First Home Loan Deposit Scheme

- New Home Guarantee

- Family Home Guarantee

- Regional First Home Buyer Support Scheme

What does this mean for you?

  • In 2019, former Labor leader Bill Shorten proposed restricting negative gearing and capital gains tax deductions. The political pain that followed acted as a wake-up call for Labor – the message that many Australian homeowners and investors had was essentially “don’t touch my property”. The Albanese government has learned much since then, axing their unpopular policies in 2019 and putting more pro-property policies, including the Help to Buy scheme, on the table this year. It’s a sign that the party is working to make sure prices don’t drop significantly, and is prioritising homeowners as well as first home buyers – a strategy that has clearly worked.

  • The Help to Buy scheme shares a key similarity with the former Morrison government’s super-for-housing policy: it increases demand for property, particularly among a certain sector of the market, namely first home buyers who don’t have enough savings for a full deposit.

  • The incentive will likely stimulate demand during a downturn in some east coast markets, offsetting some of the pressures posed by rising interest rates. Specifically, demand is expected to increase for properties in more affordable markets that meet the Help to Buy scheme price caps. Investors who own houses in the outer suburbs and regional areas, as well as apartment owners, could benefit from a lift in values. In the UK, a similar scheme saw a 6% rise in property values nationally, according to Ray White Chief Economist Nerida Conisbee.

  • Nationally, only 33.1% of suburbs have a median house price equal to or under the Help to Buy scheme’s price caps, while the proportion for units is much higher at 78.8%, according to CoreLogic. If property values were to hypothetically fall by 10%, the proportions would jump to 42.6% and 85.8% respectively. Below is a table showing a state breakdown.

Proportion of suburbs with median prices meeting Help to Buy price caps

Source: CoreLogic, Australian Bureau of Statistics

  • A sticking point in the Help to Buy scheme is that it comes with major strings attached, especially when the time comes to sell.
  • Giving up 30-40% of the home’s equity and value gain makes it tricky for the homeowner to move from a unit to a house, upsize to a bigger home and/or buy an investment property in the long run using their property’s equity.
  • For people who use this scheme, the conditions discourage property investment or doing more with their home’s equity, even if the property’s value grows.
  • Scheme participants could find their hands tied and may need to rely on increasing personal savings to buy their next property or fund other personal projects.

Prices at a glance

Houses

Units‌

Most capital cities saw price growth across both houses and units. Adelaide property owners were the winners in April, with value growth leading in the city for both houses & units.

Property values in Sydney & Hobart eased while prices stayed unchanged in Melbourne. Both house and unit prices fell in Sydney, while only house prices declined in Hobart. Unit prices in Melbourne & Hobart grew.

The capital city average values recorded no movement. Across the regional market, house & unit prices increased by 1.4% and 23.9% respectively.

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GODFREY DINH

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