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How Banking Announcements May Impact Property Growth

housing marketLouis Christopher writes a piece for Property Update where he argues over the implications of a few recent announcements on the housing market and property growth.

A quick recap of the announcements first:

  • Banks are being asked to hold a 2% extra capital in comparison to the risk weighted assets.
  • Banks are being restricted in leverage when it comes to servicing home loans.

Christopher next talks about how the banks have responded to the announcements:

  • Banks have raised capitals.
  • Increased interest rate on loans servicing investment property.
  • Restricted gearing-induced tax benefits to be utilised as income.
  • Curbed loan to value ratio (LVR).

Investor-driven momentum

Christopher argues that there is a fair chance that the existing investors will feel cramped. The clearance rate for the Sydney auction has dropped recently and prospective buyers and investors are kind of holding back. At anywhere above 70%, auction clearance can still be considered good and sound though.

The second wind to the sails of the Sydney market has largely been driven by investors and unless the investor fraternity is kicked out by the psychological baggage of momentum, they are likely to keep calling the shots in Sydney.

Banking announcements

While the investors think a lot about the rise and fall in the market, the owner-occupiers, first-home buyers and next-home buyers do not worry too much about the stats. Everyone barring the investors look to hold long term. How the dynamics might change may be answered by further announcements by banks.

You can read the original article here.

Negative gearing

Banks have limited gearing-induced benefits (tax)…this can work… but I think, the first thing you need to change about negative gearing is not related to the gearing itself but to the capital gains tax discounts availed by investors. It is this rebate which kills the level playing field and often initiates the discussion about banning negative gearing; an idea that is only bound to take the stimulus out of the housing market.