Corelogic Property Report & The Federal Budget. What It Means To The Property Market?
Firstly and most importantly, Happy Mother's Day to all the beautiful mum's. I hope you had a wonderful day.
This week is our first property news focused report since late March and much has changed over the past six weeks
Our report this week focuses on Corelogic's property market update for May as well as having an in-depth look at what this week's federal budget means for property.
The Corelogic market update in particular is a piece that you should share with your current and future vendors.
The Corelogic report focuses on the fact that property prices have now stabilised and small price gains have in fact been confirmed for March & April across the country.
Whilst this is good news for all property owners, the key message in the report is reserved for those who are currently selling or thinking of selling.
Properties on the market are currently up to 25% lower than the five year average meaning that the growing number of serious buyers have very few options when it comes to finding their dream home.
With such low stock levels and buyer confidence returning one has to ask the question, has there ever been a better time to sell ?
The Corelogic Monthly market update is below.
Corelogic's monthly market update for May 2023.
https://www.youtube.com/watch?v=3cMu5ot0bTc
Please see below the key takeaway points from this week's Federal budget
Federal Budget 2023: How will it impact the property market?
Treasurer Jim Chalmers handed down his second budget on 9 May 2023. The 2023-24 Federal Budget contained a wide range of tax and superannuation-related measures, with the overall aim to alleviate the growing financial burden faced by households and businesses due to the challenging economic conditions, marked by 11 cash rate hikes since May 2022 and an annual inflation rate of 7%.
The budget includes several measures such as reduced healthcare costs, increased income support payments, relief for electricity bills, and incentives for renewable energy investment.
However, the budget does not adequately address the critical challenges in the real estate market, which include soaring housing costs, undersupply of rental accommodations, and a bleak outlook for new home construction.
Despite a strong population growth projection, there are few new initiatives to stimulate supply or ease rental affordability issues in the short term. The government's primary objective is to help with cost-of-living pressures without stoking inflation.
Here are the key highlights of the Federal Budget 2023/24:
The budget surplus is projected to be $4.2 billion in 2022/23, followed by a deficit of -$13.9 billion in 2023/24.
Net overseas migration is expected to be 400,000 in 2022/23 and 315,000 in 2023/24.
Households can receive up to $500 in electricity bill relief, and businesses up to $650.
Aged care workers will receive a 15% pay rise, funded by $11.3 billion.
Bulk billing incentives for doctors will be tripled, and eligibility for Single Parenting Payments will be expanded.
The base rate of Jobseeker will be increased, and the small business instant asset write-off extended.
The Small Business Energy Initiative will be introduced to support businesses with energy efficiency.
Federal Budget Measures That Will Directly Impact Property Markets In terms of housing, the budget measures include:
Expanding eligibility to Home Guarantee Schemes.
Introducing tax breaks to promote build-to-rent development.
Expanding social and affordable rental housing.
Increasing Commonwealth Rent assistance.
Introducing loans for energy-saving upgrades to homes.
Expanding eligibility to Home Guarantee Schemes.
The 2023/24 Federal Budget has expanded the eligibility criteria for the previously announced Regional First Home Guarantee, Family Home Guarantee and First Home Guarantee schemes. These programs see the government act as a guarantor on the loan of an eligible participant, enabling them to purchase a home with a smaller deposit and without the need to purchase lenders' mortgage insurance.
First Home Guarantee & Regional First Home Buyer Guarantee
The First Home and Regional First Home Guarantee schemes assist eligible first-home-buyers to purchase a new or existing home. Under this scheme, part of the buyer’s home loan will be guaranteed by the government, enabling them to purchase a home with as little as a 5% deposit, with the government guaranteeing the remaining 15%.
Each year, a total of 35,000 places are available under the First Home Guarantee scheme and 10,000 places are available under the Regional First Home Buyer scheme, with the allocation for each guarantee scheme not increased in this year's budget.
The 2023/24 budget expands on the eligibility criteria. From 1 July this year, friends, siblings, and other family members will be eligible for joint applications which had previously been restricted to people that were married or in a de-facto relationship, in addition to single applicants.
This scheme will also become available to eligible borrowers who are Australian permanent residents, in addition to Australian citizens. The guarantees will also be expanded to non-first-home buyers who haven’t owned a property in Australia in the last 10 years.
This will support those who have fallen out of homeownership, often due to financial crisis or relationship breakdown.
Family Home Guarantee
This measure enables a single parent with dependents to purchase an existing home or build a new home with a deposit of as little as 2%. There are 5,000 places available each year under this scheme.
Eligibility for the Family Home Guarantee will be expanded from single parents with dependents to eligible borrowers who are single legal guardians of children such as aunts, uncles and grandparents. It will also become available to eligible borrowers who are Australian permanent residents, in addition to Australian citizens.
Does this measure address housing affordability and demand in Australia?
In the current environment, while home prices in most markets are slightly lower now than they were 12 months ago, borrowing costs are higher and prices have fallen by much less than the calculated shift in borrowing capacities would imply.
Affordability has deteriorated markedly, to the worst levels since the 1990s on some measures, and repayments are now very high relative to history in real terms.
For many first-home buyers, price caps to be eligible for the schemes remains a constraint as it rules out more than half the homes in some capital cities. The allocation caps may also limit the effectiveness of the scheme, while also increasing or bringing forward demand for housing without increasing supply to match.
The budget lacks concrete measures for increasing housing supply and affordability, though planning ministers aim to propose reforms in the next 6 months. Building new homes in desired areas is crucial for addressing affordability as population growth continues.
Social and Affordable Housing
The 2023/24 Federal Budget allocates an extra $2 billion towards the expansion of social and affordable rental housing. This funding boost will allow the National Housing Finance and Investment Corporation (NHFIC) to increase its liability cap from $5.5 billion to $7.5 billion effective from 1 July 2023.
By doing so, NHFIC will be able to offer more affordable and long-term financing options to community housing providers, enabling them to develop additional social and affordable rental properties.
While the increased funding for social and affordable housing will provide stable housing for those in need, it is an expensive solution. The budget's additional funding is expected to support around 7,000 new dwellings, but rental assistance increases may be a better targeted measure.
Increase to Commonwealth Rent Assistance
The government has allocated $2.7 billion, over five years, to increase the maximum rates of Commonwealth Rent Assistance by 15%. There are currently 1.1 million households receiving Commonwealth Rent Assistance and this measure takes the maximum fortnightly payment from $208.74 to $240.
Strong demand to rent, bolstered by the fast pace of immigration, is well outstripping the supply of available rentals, with the total supply of rentals in the capital cities sitting at historic lows in March, with the supply of available rentals down -18.3% year-on-year.
In the capital cities rental prices are up 18% on pre-pandemic levels, while in regional areas rents are up 23%.
This increase to Commonwealth Rent Assistance is the largest in more than 30 years, but rent assistance payments have long fallen behind soaring rental prices. The persistant undersupply of properties available means prices are likely to continue growing in the coming months, with fierce competition for what's available. An increase in supply of rental dwellings is desperately needed, but this may require some time.
Introducing tax breaks to promote build-to-rent development
Build-to-rent developments are purpose-built residential properties intended for long-term rental by tenants and often owned and funded by large institutional investors, such as superannuation funds. The 2023/24 budget proposes changes to the tax regime for build-to-rent projects, including an increase in the depreciation rate from 2.5% to 4% per year for eligible new build-to-rent projects, with construction commencing after 9 May 2023.
This measure will apply to build-to-rent projects consisting of 50 or more apartments or dwellings made available for rent to the public. The dwellings must be retained under single ownership for at least 10 years before being able to be sold and landlords must offer a lease term of at least three years for each dwelling.
Additionally, the withholding tax rate for foreign residents on income from newly constructed residential build-to-rent properties after 1 July 2024, will be reduced from 30% to 15%. These changes are aimed at boosting build-to-rent projects in Australia. The reduced managed investment trust withholding tax rate for residential build-to-rent will apply from 1 July 2024.
Will the measures outlined in the budget be enough to tackle Australia's housing crisis? Despite industry estimates that tax cuts for build-to-rent developments could lead to 150,000 new rental properties over the next 10 years, this will only cover 9.6% of the forecast increase in households due to a strong rebound in population growth and immigration. Encouraging smaller investors to return to the market is a missing ingredient in this years budget.