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NSW Stamp Duty Slashed, a Major Boost for First Home Buyers and Construction Sector

The major victors under a targeted stimulus plan, which removes stamp duty on newly constructed houses under $800,000 and cut thousands of dollars for homes valued for up to $1 million are first home buyers and the construction sector, in general.

As part of the government’s COVID-19 Recovery Plan, the change in stamp duty ceiling is boosting housing construction across NSW and create jobs in the construction industry.

The changes include increasing the threshold at which stamp duty is to be paid for new homes for first home buyers from $650,000 to $800,000, with the concession declining as prices increase before being eliminated at $1 million.

The government expects that the changes is likely to benefit over 6000 first home buyers, with eligible applicants getting thousands of dollars in savings.

In addition, the stamp duty threshold on vacant lots has increase from $350,000 to $400,000 and is removed at $500,000.

The new rule only covers newly constructed home and vacant lots, not existing properties, and is valid for 12 months, starting from 1 August 2020. Existing schemes will continue to be applied for other purchases.

According to Treasurer Dominic Perrottet, the stamp duty savings for first home buyers amount to is no less than $31,335 on a new home valued at $800,000.

Since July 2017, over 93,000 first home buyers have benefitted from the existing scheme, and the building sector will get added support as the country confronts the challenges of the current health crisis.

Other NSW government schemes also continues to include a $10,000 First Home Owner Grant, which is open to first home buyers eyeing a property worth no more than $600,000, or purchasing a lot and constructing a new first home valued at no more than $750,000.

This means a first home buyer should expect to benefit a maximum amount of $32,335 if they are buying a new property and being eligible for the grant.

Indicative tax threshold changes:

Property Type Existing stamp duty amount for eligible first home buyers New stamp duty amount for eligible first home buyers Saving
Vacant Land $350,000 $0 $0 No change
Vacant Land $400,000 $0 $0 $7793
New home $650,000 $0 $0 No change
New home $700,000 $10,445 $0 $10,445
New home $800,000 $31,335 $0 $31,335
New home $900,000 $35,835 $20,168 $15,668
Existing home $650,000 $0 $0 No change
Existing home $800,000 $31,335 $31,335 No change

 

 

 

 

 

Australia’s Property Values See Highest Rise Since 2016

 

 

According to new government data, property prices are rising again.  However, static wages mean the growth may not be for long.

In the September quarter, national property prices had the largest increase since the end of 2016 as shown in the latest ABS data. Prices grew a weighted average of 2.4% across the eight capital cities, with faster gains seen in Sydney and Melbourne, at 3.6%.

The statistics back previous reports from CoreLogic, a property analytics firm, which showed the property market reached its bottom in June. The primary factor responsible for the fast price rebound was improved borrowing capacity.

Changes to mortgage serviceability laws under APRA in July lifted the borrowing capacity of potential purchasers by about 11% overnight. As a result, they were able to bid and  raise prices at auctions.

And a further rate reduction in October allowed them to make more borrowing.

Change in Property Value

Residential property prices June quarter 2019 to September quarter 2019 %change June quarter 2018 to September quarter 2018 %change
Weighted average of eight capital cities 2.4 -3.7
Sydney 3.6 -4.6
Melbourne 3.6 -3.5
Brisbane 0.7 -2.6
Adelaide -0.3 -1.0
Perth -1.2 -4.6
Hobart 1.3 2.1
Darwin -1.2 -5.4
Canberra -0.5 -1.4

*Source: Australian Bureau of Statistics

But how long will this boost last?

The market is expected to regain at least 11 to 13 percentage points of the price declines reported in Sydney and Melbourne during the 18-month slump. However, with wages rising at only 2.2% annually and unemployment tracking upwards, it is not easy to forecast whether prices would increase much past that.

Sydney’s market has declined 18% from peak, suggesting one cannot claw it all back simply on a buying perspective. And with income growth remaining quite sluggish, that implies what people are experiencing at the moment is a little sugar hit, because people have more money and can pay those higher prices.

The fast increase in past months could soon turn modest – not least since the number of properties for sale has been at low levels for years.

The number of properties on the market in November was the lowest year-on-year level since 2009. As supply rises, the monthly increases in house prices are expected to moderate in Sydney and Melbourne. In addition, low consumer sentiment and shrinking affordability will also dull growth.

Although some economists think the housing recovery shows a reflating of the debt-driven property bubble. They said that APRA and the RBA should initiate rules designed to slow down the housing market, since Australia is already seeing record-high levels of household debt.

Australians currently have $2.02 in debt for each dollar they earn, according to NAB. This means the country’s increasing property values would be of little help to the economy.

According to the RBA, housing price increases should back wealth effects and confidence, so the metrics on retail sales and sentiments should be intensely monitored for this.

The effect should be negligible at best, while the upside risk to credit growth is much more highly probable.

 

 

Investors Gear Up to Buy as Australia’s House Prices Fall

When markets begin to fall, ever-resilient investors begin to ask if it’s already time to buy.

If you follow the advice of economists and analysts, then the smart way is don’t rush as more challenges are still ahead. But if you follow history, then this is merely another glitch on a history-making market. Though both sources are very tricky, they are often relied on.

What is the situation that investors face?

The latest house price report from the Domain Group says that house prices in the country declined 1.2% over the past quarter, with the national median declining to $809,201 from a record high posted in the past quarter.

Meanwhile, annual price movement is still in the upbeat zone, but the 2.3% growth is the lowest posted since 2012.

Sydney, Australian investors’ hottest pick, reported a 2.6% drop from media house prices in the March quarter and posted its first year-on-year decline in six years. Meanwhile, Melbourne saw a 1.0% increase 0.1 in the quarter and 8.8% over the year – holding on to its 22nd straight quarterly increase record by a slim margin.

The macro-economic observations are very negative as well, with regulators instituting stricter controls on lending; the banking royal commission presenting the possibility of more restrictions, forecasts of increasing interest rate, and economists forecasting more house price declines in the future.

Economists predict more challenges

A correction in Australian house prices is expected to last two to four years. However, the long-term price increase seen in property markets makes the decline seem small.

Following impressive gains over the last 10 years, prices in Melbourne and Sydney could be priced too highly by as much as 25%.

This potential issue could be addressed by house values declining significantly, or a fixed period of extremely minor house price declines and increasing income growth. This is scenario is what economists are offering.

There are other experts who have offered forecasts for the future of the property market.

According to AMP, Sydney and Melbourne house prices could decline by 5% in 2018, but no crash. Morgan Stanley, meanwhile, forecasts sluggishness for the rest of 2018.

In contrast, ANZ economists believe that all challenges are over and forecasts a 2% increase in 2018 and 4% in 2019.

Is the worst over, or another glitch?

A thinned-out group of property investors will need to determine if a post-golden era of investing is beneficial. This is true if we look at history.

A world record was recently posted by Australian house prices when growth reached 6556 % in 55 years, according to data from the Bank of International Settlements and cited by UBS, with gains averaging 8.1% annually during that period.

Prices increased twofold every nine years. It was deemed the world’s longest increase during that period with no downswing. Downswing means a steady price fall of three years.

And more currently, history has shown that price declines tend to be fairly fast and negligible.

There have only been three falls in the national year-on-year property prices in the last 15 years, according to data from Domain Group. And in that period values haven’t declined by over 19% in one quarter.

Though Australia’s present economic, debt and housing situations are very different from the past, positive tax laws continue to drive investors towards housing. Meanwhile, population growth continues to be robust, which indicates plenty of prospective tenants, and employment figures continue to be strong, which denotes people would be able to pay rent.

There are plenty on the line for short-term investors, though there will be despair for a few bottom-pickers. However, plenty will remain very satisfied property investors.