Property owners who threw money at West Australian real estate during the state’s unprecedented boom last decade are not the only ones lamenting the current sluggish performance of the State’s housing market.
In a recent budget speech to parliament, WA treasurer and attorney general Christian Porter said the flat property sector has cost the state government an estimated $836 million in projected stamp duty revenue over the next four years.
Porter noted that, “transfer duty forecasts in this budget have been revised down by $836 million, reflecting ongoing weakness in the housing market.”
Property Observer reports that Porter claimed prospective buyers waiting to for the market to hit bottom were adding to the decline in transactions and general lackluster performance of house prices.
Buyers are still reluctant in the West
“Buyers still think that the bubble that burst after 2005 and 2006’s extraordinary growth has not yet quite reached the bottom,” says Porter.
It’s unlikely, however, that purchasers will feel much sympathy for the government’s budget plight given that official documents show they raked in around $1.2 billion in transfer duty revenue for both 2010-11 and 2011-12.
On top of that, even with the revised downward forecast, that figure is expected to climb by 17.7 per cent to $1.45 billion for 2012-13 as the market starts to show signs of a recovery.
Porter said transfer duty revenue has been lower than anticipated in recent years due to weak sales volumes and house prices since 2008-09. He reports that average monthly transactions in the housing market have been around 35 per cent less than in the previous four years.
Given that no one can accurately predict the future fortunes of Western Australia’s housing market (or any other property market in Australia for that matter), Porter concedes that their budget assumptions around stamp duty income could change.
“Property transactions are highly susceptible to fluctuations in market sentiment and are therefore highly volatile and difficult to forecast,” he says.
“The current transfer duty forecasts are balanced against the risk of continued weakness in the housing market and the risk that market sentiment could quickly change and cause a faster than expected recovery in transaction volumes.”
Is the market turning?
Good news for WA investors is that the government seems optimistic about a recovery in sales transactions and as a result, expects a modest increase in house prices over the coming months.
“Transaction volumes are expected to move toward a long-run trend over the forecast period, while residential property prices are forecast to increase at a modest rate broadly in line with the expected growth in incomes (of around 5-6% per annum),” says Porter.
Good news for WA first home buyers
First home buyers in the west have reason to rejoice, as Porter has maintained current stamp duty exemptions which waive duty on properties purchased for less than $500,000, even though he expects transfer duties to be at lower levels than before the global financial crisis in four years time.
REIWA president David Airey says the concession is needed to support the housing market, claiming first-time buyers are one of the few active groups in the current market.
“I’m pleased to see the government has retained its stamp duty concession for first-home buyers, because this has been successful in maintaining first-home buyers at around 25 to 27% of the market over the past 12 months,” he says.
“The importance of the stamp duty concession for first home-buyers in the modest market recovery currently being experienced cannot be underestimated.
“REIWA analysis of the budget papers indicates that, as usual, property buyers will carry much of the burden of the shortfall in GST revenues as the government, by not indexing thresholds, reaps the windfall gain from projected price and sales volume increases.”
Further lifting investor spirits is Airey’s comment regarding the increasingly tight conditions in Perth’s rental market. The city’s growing population and low vacancy rates are causing rents to rise significantly.
So much so that the government has pledged $130 million to the construction of social housing over the next two years.
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