Budget “rocket fuel” for property prices
The 2020 Federal Budget has included hundreds of billions of dollars of economic stimulus measures the likes of which we’ve never seen.
In fact, I believe it will be metaphorical rocket fuel for property prices in many places.
This budget was always going to be an outlier compared to any other in living memory.
That’s because the pandemic has upended the rule book when it comes to economic management.
I was a chartered accountant in my former professional life so it’s clear to me that the budget is all about fiscal stimulus on a massive scale, including cutting back taxes significantly to encourage us all to spend more.
What impact does it have on property prices?
The government wants our economy to rebound as quickly as possible and is obviously prepared to spend whatever is necessary to make that happen.
That’s why there are a number of job creation and wage subsidy measures in the budget to help reduce our unemployment rate as quickly as possible – and especially amongst our youngest workers who have been hardest hit during the pandemic.
More than $100 billion has also been commitment to fund major infrastructure projects across the nation and there will be a relaxation in lending policies to claw back some of the restrictive practices left over from the royal commission.
While the net debt position of $1 trillion is a bit of a shock, there is no question that the government had to do something fiscally significant to kickstart our economy.
When it comes to the impact on property prices, I believe the budget measures will supercharge the next round of growth.
While Melbourne might lag behind other locations, the outlook for many regional and capital cities locations is extremely positive.
Indeed, I’m confident that we’re going to see a sharp recovery.
However, property prices never really contracted by much anyway.
A number of forecasters lately have suggested double digit dwelling price growth in many locations over the next year or two – which is a point of view that I wholeheartedly agree with.
Even the Federal Treasurer is bullish on the economic growth targets, with the government also forecasting a sharp recovery.
What’s happening in the market now?
Prior to the budget announcement, property markets were holding up much better than a lot of pundits thought they would.
Dwelling values were steady in many locations, apart from Melbourne, with the low volume of stock creating strong competition amongst buyers.
In the markets where we buy for clients, we certainly aren’t seeing any bargain prices – and that state of affairs will not change in the months ahead.
That’s because one of the early indicators of future property price growth is when there is an undersupply of rental properties, which starts to force rents upwards.
This is the case at present with our clients’ investment properties in places like Brisbane’s bayside, Western Sydney, the Central Coast, and Regional Victoria leasing in a matter of hours.
Sometimes, rental properties are being snapped up by tenants as soon as they are listed online.
Of course, when there is such strong demand for rental properties, rents start to rise, with increases of $50 per week or more currently quite common.
What usually happens next is the numbers no longer add up for some renters, who opt to move into homeownership – adding to the pool of buyers competing for a low volume of listings.
In the parts of the country that we’re buying in for clients, we’re competing with homebuyers and savvy investors for the best opportunities.
Sometimes, the sale prices are being pushed to levels that no longer make financial sense for our clients and we walk away.
However, there are still solid opportunities available – but with the budget “rocket fuel” now under way, it’s hard to determine how long that situation will last.
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