Market Update

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What the Federal budget means for the property market

1224071_money_The Federal Budget 2013 has been released and despite a few helpful hints, there may not be much to cheer about for the property market.

Baby Boomers find themselves among the beneficiaries; they can now look to downsize without worries of a pension-hit. Sonja Koremans for the News reports that those seniors who have owned a home for more than 25 years can benefit from this government program. As an aside, the Federal government has also seen to the philanthropic side and catered to homelessness and damage-control for natural disasters.

The budget deficit announced is quite contrary to the earlier promise and this has been blamed on the strong Aussie dollar and the so-quickly-falling-apart mining boom. Let us talk about a few Federal budget announcements.

The flop side for the property market:

  • No First Home Owners Grant suggested
  • No dedicated housing policy
  • Inhibited reforms on the supply-side
  • No housing infrastructure funding reform in sight
  • Near negligible support for building product manufacturers and suppliers

The flip side:

  • The rate cuts are to continue
  • This may bolster the present inflation situation
  • It might weaken the buoyant Aussie dollar thus bringing the expats back
  • Domestic buyers not targeted by the Federal budget
  • Negative Gearing to remain as it is
  • Capital gains tax also remain constant
  • Superannuation reforms to be initiated

How will the budget aid home building activities

The budget fails to inspire home building activities; already the building manufacturers are wary of low demand and the resistant Aussie dollar is not helping them any. Consistent population growth has not been able to spark equivalent housing activity and the budget does not do anything to this effect. Government is pretty vocal about scrapping the FHB grants and it would be hard to persuade them to revoke it.

Negative Gearing and Capital Gains tax untouched

Koremans contests that the budget may not cheer up the foreign investing fraternity (due to the deficit) but it has relieved a few of the domestic players. After all, they were really wary about changes in Negative gearing and Capital Gains tax; something which has not happened. You can read the full article here.

Deficit to ease interest rates further, Baby Boomers’ incentive in great taste

Smart article by Koremans I suppose. I also feel that in a situation of proposed National Debt or budget deficit, the government would have to keep borrowing to meet its needs (in case of a budget deficit, the government spends and not an individual or a business firm) . Naturally, it would want the cash rates to be as low as possible for the borrowing to be leveraged reasonably well. Thus the declaration of the budget deficit is also a near-guarantee of a low interest rate environment in future (atleast foreseeable future).

Thus one can fairly infer that the Federal budget despite its inattention to the property market is going to assist it nonetheless. However, the question is whether low interest rates are enough temptation for buying houses? It could have been, typically speaking, but less mortgage debts and low cash rates have not sparked a big buyer response yet. Odd but true. It remains to be seen whether the Federal budget gives them enough reasons to do so.

The Baby Boomers’ incentive is in great taste. Their disposable income is higher than the others and they hold a good part of housing stock. Allowing them to downsize (reducing home sizes, keeping lifestyle constant) will help the government in compensating for the demand pressure and bringing the housing affordability equation under control.

Are you planning to take advantage of the Baby Boomers’ incentive?