This article was first published on The Australian | May 5, 2016 12:00AM by Turi Condon Property Editor Sydney
Price growth across Australia’s $6 trillion housing market will be stoked by the trifecta of this week’s interest rate cut and the budget double that left the negative gearing tax break intact and super looking less favourable, according to industry executives.
The events would elongate the rise in the housing market rather than reignite the boom conditions of last year, said Mark Steinert, chief executive of Australia’s largest residential developer, Stockland. “It’s not sufficient to see double- digit price increases again, and if it were, that would be a bad outcome,” Mr Steinert said.
The Reserve Bank on Tuesday cut the cash rate to a record low of 1.75 per cent with economists predicting another 0.25 per cent cut before the end of the year. Meanwhile in the budget, negatively geared property investments and capital gains tax concessions were untouched, but superannuation tax concessions were tightened, including for those with taxable incomes of more than $250,000 a year and with super balances of $1.6 million and above.
Despite this, Stockland predicts national housing prices will rise 3 per cent to 4 per cent over the next year, compared with the current capital city growth annual rate of 7 per cent.
Mr Steinert said Sydney — where a runaway market turned in 18 per cent price rises in the 12 months to last July — may only see up to 3 per cent price growth as the city “bumps up against affordability issues” and a burst of apartment supply is delivered.
In Melbourne and Brisbane, Stockland expects housing prices to rise 3-4 per cent, with the Perth market flat.
Brian White, chairman of real estate group Ray White, said the housing market was buoyant with the easing of Chinese investment taking out some of the heat.
Economist Saul Eslake said when cutting interest rates this week, the Reserve Bank had noted the regulatory actions to strengthen lending standards had lessened the risks in housing markets with price pressures abating.
In late 2014, investors accounted for about half of all home lending, and more risky interest only- loans were rising, Mr Eslake said. Investors’ share of lending has since fallen to about 35 per cent.
“If there had been no action, then cutting rates would have thrown further fuel on the fire. But this has already been dampened,” he said.
Mr Eslake said it remained to be seen how much of a stimulus would be provided by the interest cut and budget initiatives.
“The government seems to be saying to two groups of people: go out and negatively gear property.”
This applied to those on a taxable income of less than $80,000, who didn’t receive a tax cut in the budget, and at the other end of the spectrum, those with a super balance of $1.6m or more, or a taxable income of more than $250,000.
“So you are better off negatively gearing a property than putting money into super,” Mr Eslake said. “Is that really what we want for Australian society?”
Financial adviser and head of MySMSF Robert Joseph expects more money to move into property investment, development and funding at the expense of superannuation.
“Super is going to be damaged and treated with caution by the wealthy. It’s a middle-income tax benefit scheme now,’’ he said.