Budget Now The Dust Has Settled
The budget is just a little over a week old, and there’s been a huge amount of comment, there always is, before and after Budget Night. The entire process seems to last for months. So I won’t repeat what has already been said, but I did want to give a quick synopsis.
On Tuesday night, straight after the budget was delivered, I formed a view that many of the policies announced would impact the residential property market and that view firmed over the following few days.
Why I think this, really rests on four key points. Firstly while not directly part of the budget, the cut in interest rates, also on Tuesday, plus possibly more to come, will see mortgage rates stay at very low levels for the immediate future. I have read suggestions that rates could still be around 4% in 2020. Low rates will put a solid floor under the market and we should not overlook the fact that we have also maintained unemployment below 6% and this is another positive for market sentiment.
The second part of the mix concerns negative gearing and the fact that the Federal Government has now put the ongoing debate to rest, giving investors clear air. The market hates dithering policy areas and the seemingly endless debate was not welcome, so clarity will further boost activity.
The third policy area concerns the big changes to superannuation. The changes will start to re-shape investment patterns and if money is locked out of or made less attractive in superannuation, then more funds can be expected to flow into property.
Superannuation savings tend to be long-term and this sits well with property, although I suggest there will be an emerging focus on quality properties. Where apartment projects are concerned, prime locations will experience rising demand and so as a result I suggest that more defined sub-markets will develop with selective investment the key.
Additional funds flowing into property will appeal to many investors as a direct means of creating additional income and the potential for capital gains, made more attractive because of the level of personal control that such investments have always offered.
My final observation concerns the impact of possible shifts in the labour market brought about by a big increase of infrastructure projects. As we saw during the mining boom, demand for labour tends to pull resources from the local construction sector. If a lot of big projects repeat this pattern we may see labour become tighter in the housing sector and this could slow the delivery of new supply. Labour in the housing market is often contractor and casual and so is very mobile and such a flow on impact cannot be discounted.
Post budget this combination of facts tends to point to a stronger outlook for property markets in the second half of 2016.