In today's monthly Big Picture episode Pete Wargent and I will be exploring the nightmare ahead because of our capital city housing shortage, how the Budget will affect our property markets, and how Build to Rent works because as a property investor, you must know about it.
We’ll also discuss the retreat from the regions plus lots more.
It's old news now that the RBA raised interest rates again at the beginning of May, but many commentators believe that's the last rate rise this cycle.
In fact, all the banks and now forecasting falling interest rates starting either late this year or early next year.
But on the other hand, there are still some commentators suggesting we will have a few more rate rises.
- Andrew Wilson’s My Housing Market reported that the national housing market continues to rebound, with quarterly house prices now rising over the April quarter for the third consecutive month.
- CoreLogic’s national Home Value Index posted a second consecutive monthly rise. Their Home Value Index increased by half a per cent in April, following a 0.6% lift in March to be 1.0% higher over the past three months.
- PropTrack reported that after declining for most of last year, home prices have continued to increase again, with April marking the fourth consecutive month of rises nationwide.
Of course, there is not one property market.
Each state is at a different stage of its own property cycle and within each state the submarkets are fragmented as each segment is affected differently by interest rates, the cost of living, and our economic challenges.
While Australians grapple with one of the worst housing shortages in history, buried deep in the Appendix of Budget Paper 3 was the federal government’s official net overseas migration (NOM) forecast, which has been aggressively increased.
Plus, we’ll be welcoming more students and temporary visa holders meaning our population could increase by 1.5 million in 5 years and possibly even 3 years.
- There have been mixed opinions about the inflationary impact of Treasurer Jim Chalmers’s budget
- Overseas migration is expected to be a record 400,000 for the 2023 financial year, with another thumping 315,000 forecast for FY2024, and another 260,000 in FY20225.
- The federal government has attracted renewed criticism over a budget forecast that net migration will increase Australia's population by 1.5 million people over five years.
- A plunge in new home building to a 10-year low will collide with the arrival of a record 1.5 million migrants, worsening housing shortages, driving up rents, and inflating real estate prices, say property executives.
For the housing market, there will be some rent relief for those most in need, and the expected tax incentives were announced in the Budget to promote institutions pouring funds into the Build to Rent sector.
We could see up to 150,000 new BTR units delivered over the next decade, about two-thirds of which will likely be in Melbourne.
- The units will offer a guaranteed lease period of at least three years for those seeking security, though current experience suggests that rents will be around 25 per cent more expensive than what's currently available on the open market.
- Tax changes will encourage more foreign investment in the build-to-rent sector. The managed investment trust withholding tax rate for residential build-to-rent developments will be halved from 30 per cent to 15 per cent, Tuesday’s budget confirmed. The capital works tax deduction, or depreciation rate, applied to build-to-rent projects will also be increased to 4 per cent a year.
- The government says the measure will encourage investment and construction in the build-to-rent sector, expanding the housing supply.
While the media keeps scaring us saying we could fall into recession, and in its latest World Economic Outlook, the IMF forecasts “feeble and uneven” global output growth of 2.8 per cent this year, a fall from 3.4 per cent recorded last year, with the prognosis for some advanced nations even falling into recession.
Australia is expected to avoid an all-out recession in 2023, but it’s starting to feel like one as the cost of living and interest rate hikes cause shoppers to close their wallets.
And while we might avoid a full-blown recession, Australia could be afflicted by another type of downturn, a “per capita recession”.
The RBA's decision to lift rates was supported by a more positive trend in housing conditions, and a lift in consumer attitudes, which could keep inflation higher for longer.
The latest rate hike may act to dampen some of the recent housing exuberance.
At 1.1 per cent national rental vacancy, where three per cent is a ‘healthy market’, there are not enough homes to rent in Australia.
And now, the cost of renting is rising rapidly after a decade of slow rental growth.
Cyclical demand drivers and apartment supply failure are the key drivers.
Before we get to the solutions, we should consider one proposal that will actively harm the supply of new homes.
The Greens’ proposal on rent capping would hurt the supply of housing across Australia.
The vast majority of rental accommodation is provided by the private rental market.
Rent capping is code for housing supply reduction.
Nobody wants that.
Links and Resources:
Metropole’s Strategic Property Plan – to help both beginning and experienced investors
Get a bundle of free reports and eBooks – www.PodcastBonus.com.au
Some of our favourite quotes from the show:
“If you look at the figures from the various research houses, they’re going up half a percent, one percent a month, but if you annualize that, then values of well-located properties could well be 6, 7, 8% higher at the end of this year – Michael Yardney
“The reason that institutions may be interested in this is because the government’s going to give them some tax relief and it’s going to increase depreciation allowance. – Michael Yardney
“You won’t truly get ahead by working for somebody else.” – Michael Yardney
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