The total value of new loan commitments for housing rose 5.9 per cent in September, seasonally adjusted, according to the latest Australian Bureau of Statistics (ABS) figures released today.
The value of owner occupier home loan commitments rose 6.0 percent to $17.3 billion in September.
ABS head of Finance and Wealth, Amanda Seneviratne, said, “Approximately half of the rise in September’s owner occupier housing loan commitments was for the construction of new dwellings, which rose 25.3 per cent”.
This followed a 19.2 per cent rise in August.
“Owner occupier housing loan commitments are at historically high levels, consistent with low interest rates and government incentives. For example, it is likely that the HomeBuilder grant is contributing to increased demand for construction loans”, Ms Seneviratne said.
A new article on the ABS website provides an overview of how the dwelling construction and finance process is recorded in ABS data. The article also describes how government grants, such as HomeBuilder, interact with the construction and finance process, and how such grants will impact ABS statistics.
The value of owner occupier home loan commitments rose in all states except Victoria and Tasmania. Victorian owner occupier home loan commitments fell 8.8 per cent in seasonally adjusted terms reflecting decreased housing market activity in July and August when COVID-19 related stage 3 and stage 4 restrictions were imposed.
“The fall in commitments for existing dwellings in Victoria was partly offset by a rise in commitments for construction of new dwellings”.
The total number of owner occupier first home buyer loan commitments rose 6.0 per cent, reaching 13,040 loan commitments, seasonally adjusted.
The total value of loan commitments for investor housing was $5.3 billion, an increase of 5.2 per cent.
The value of new loan commitments for fixed term personal finance rose 8.5 per cent in September, seasonally adjusted, as commitments for vehicles recovered from the fall in August.
The ABS appreciates the continued support of the Australian Prudential Regulation Authority (APRA) and lending institutions in providing the data used to compile this publication and for the additional data insights being provided by lending institutions.
Treasurer says make it easier for ADIs to call themselves banks will encourage new wave of fintech lenders
The Government is going to make it easier for authorised deposit-taking institutions to call themselves banks, in the hope it will reduce the cost of loans.
Currently only ADIs with more than $50m in capital can call themselves a bank but Treasurer Scott Morrison says this prohibition will soon be removed.
“There are approximately 58 ADIs in Australia that will then be entitled to call themselves a bank, boosting their market appeal and their ability to secure cheaper funds,” Morrison noted. “The benefits to the customer are simple – cheaper loans.”
Morrison pointed to the UK, where easing usage of the word bank in 2013 encouraged the growth of new ‘digital banks’ such as Monzo and Starling. According to Morrison “it led to a flood of new online lenders into the market, forcing the major banks to slash their interest rates and product pricing.”
New entrants in Australia
APRA has tried to make it easier for ADIs to call themselves banks in recent years, with new banks including Bank Australia, previously the Members and Education Credit Union.
However, there has been only one new bank licensed in the last decade that was not already an ADI or subsidiary of a foreign bank. Tyro, an early entrant into the EFTPOS business, was granted a banking license in 2015.
Credit unions, mutual and challenger banks have provided a number of competitive interest rates to clients in recent years. Due to their small size, however, they have often been overwhelmed by surges in lending: one of the biggest, CUA, halted all investment lending in April.
More needed to encourage competition
Morrison’s assumption that Australian challenger banks can follow the path of their UK counterparts has a number of flaws.
The UK is years further along the track of open banking (comprehensive credit reporting) for which the Australian Government is only now developing legislation. Sharing data plays an important part in the model of many fintech banks.
Non-major and challenger banks in Australia are also hamstrung by APRA’s capital requirements, which force them to hold more capital than even for the most high-quality loans. This makes it more expensive for them to lend than the majors.
Housing finance commitments have reached above decade averages in seven states and territories, and above year-ago levels in all economies, according to CommSec data.
The latest State of the States report October 2020 has revealed that in seven of the states and territories, housing finance commitments are above decade averages, up from five in the previous quarter.
The CommSec economics team particularly noted that home loans were above last year’s levels in all economies across Australia despite the coronavirus pandemic, compared with only three states and territories in the previous report, the report stated.
CommSec’s report assesses the economic performance of each state and territory each quarter by analysing eight key indicators: economic growth, housing finance, dwelling commencements, construction work done, retail spending, equipment investment, unemployment and population growth.
Economic rankings of states and territories in the latest report has revealed how the pandemic recession has affected some states and territories more than others.
To assess home loan trends, CommSec uses the value of owner-occupied housing finance commitments, extracting August data from the Australian Bureau of Statistics, and compares it with the decade average for each respective state and territory.
According to the data, Tasmania has occupied the top position, with the value of home loans up by 75.2 per cent on the long-term average, while the ACT is up 67.3 per cent, NSW is up 43.1 per cent and Victoria is up 41.9 per cent.
Commitments in Western Australia were up 7.8 per cent on the decade average, followed by South Australia (up 36.5 per cent) and Queensland (up 40.4 per cent).
Northern Territory on the other hand posted weak numbers for housing finance, with commitments 9.5 per cent lower than its decade average.
On an annual comparison, Tasmanian finance commitments were up the most (up 39 per cent), followed by the ACT (up 36.2 per cent), Queensland (up 34.3 per cent), Western Australia (up 33.7 per cent) and Northern Territory (up 32.9 per cent).
Victoria posted the slowest annual growth at 23.9 per cent, while South Australia was up 27.3 per cent and NSW was up 28.6 per cent.
Tasmania was also the standout performer across the dwelling starts indicator, driven by “above normal” population growth and relatively low home prices compared with the mainland.
In the June quarter, starts in Tasmania were 9.5 per cent above the decade average.
All other states and territories recorded negative growth for dwelling starts, with Victoria down 1.1 per cent, the ACT down 5.1 per cent and dropping from first to third spot, NSW down 9.8 per cent and South Australia down 10.3 per cent, while Queensland was down 17.5 per cent.
The Northern Territory recorded the steepest decline of 60 per cent, while Western Australia was down 46.7 per cent.
Construction work, which was measured by the total real value of residential, commercial and engineering work completed in seasonally adjusted terms in the June quarter showed that in five of the states and territories, construction work in the June quarter was higher than the decade average.
Victoria has retained the top spot, with construction work done at 27 per cent above its decade average, while NSW was 9.2 per cent above the decade average, and Tasmania was up 6.3 per cent.
The ACT was 5.3 per cent above decade averages, while South Australia was up 4.4 per cent.
On the other end of the scale, Northern Territory construction work done in the June quarter was 67.6 per cent below the decades-average, while Western Australia was down 43 per cent and Queensland was down 23.1 per cent.
Overall, Tasmania ranked first across several indicators, including relative population growth, equipment investment, housing finance, dwelling starts and retail trade, while ranking third or fourth on the other three indicators.
Commenting on the overall results in the report, CommSec chief economist Craig James said: “The coronavirus crisis is causing mixed operating conditions across industries and across states and territories.”
“A key factor driving the relative success in economic performance has been the relative success in suppressing the virus. Suppressing the virus increases mobility, allowing the reopening of businesses and for workers to get back to work.
“Future reports will prove valuable as we track how each state and territory navigates the crisis, especially the recovery phase. State and territory governments have been active in providing stimulus and support measures for their economies. And the federal government and the Reserve Bank have provided significant broader nationwide support for business and consumers.”
The Federal Budget 2020-21 handed down by Treasurer Josh Frydenberg earlier this week introduced a raft of tax cuts, job creation measures and other stimulus intended to help get Australia through the COVID-19-triggered recession.
Below, AB hears from key market players regarding what the budget means for small businesses, for the property market and for brokers.
CreditorWatch chief economist Harley Dale has commended the 2020-21 budget for its fair and practical approach to supporting Australian businesses.
“The government has considered a suite of policies that cover a broad range of the Australian economy – not being one dimensional, but rather all-encompassing – ‘pumping tyres up for everyone rather than a select few’,” he explained.
“In terms of the SME businesses who are all suffering at the moment, the announcement of the Instant Asset Write Off boost is welcome news. This announcement will deliver significant financial relief to struggling SMEs. If you are a small business that has been capable of surviving COVID, and you need to grow your business, the instant write-off will allow you to immediately invest in capital machinery.”
Graham Wolfe, managing director of the Housing Industry Association (HIA), was effusive in his welcoming of the budget as an effective means to both boost the home building market while also making home ownership more attainable to a larger subset of Australians.
“Tonight’s budget has given both first home buyers and more than one million workers in the residential building industry the incentive and confidence needed to continue to navigate through these challenging times,” he said.
“By increasing the number of people eligible for the First Home Loan Deposit Scheme by 10,000, focusing on new home builds, and raising the price thresholds, the government has opened the door to a larger group of first home buyers.”
To Wolfe, the budget’s handling of housing has made clear the “government is listening to industry”.
“Combined with the confidence-boosting business investment incentives, these measures will go a good way to helping Australians during these unprecedented times to secure a job and achieve their dream of homeownership,” he said.
The broker opportunity
Connective executive director Mark Haron has highlighted the key areas of opportunity the budget creates for finance brokers.
“We’re hoping the additional income in taxpayers’ pockets will stimulate the economy, increase confidence and borrowing capacity,” he explained.
“There are also plenty of opportunities for our asset finance brokers to support their clients and strengthen their pipeline through the expanded instant asset write off available to 99% of businesses and cash injections across key industries. [That] and the job maker wage subsidy are both terrific ways for our members to invest in their business, and their future.”
To Haron, the good news for the property market presents yet further broker opportunity.
“The expansion of the FHB scheme by 10,000 places is very welcome, particularly as the first allotment was snapped up and the first home buyer purchases have remained strong throughout the pandemic. And capital gains tax will now be scrapped for granny flats, opening up opportunities for borrowers,” he said.
The following is an extract from the June Quarter edition of the Quarterly Economic and Property Review.
Housing finance data over the June quarter revealed subdued new lending for dwelling purchases, and a pivot toward refinancing of existing loans to help reduce housing costs.
In May, the value of new lending for the purchase of dwellings fell 11.6%, the largest decline on record. This represented a month-on-month decline of about $2.2 billion.
The fall in the value of finance commitments in May was likely due to a decline of 33.7% in sales volumes over April. ABS housing finance data has, at times, has lagged CoreLogic sales volumes. This is because the date of a sale record from CoreLogic is generally indicative of the contract date, whereas a secured loan is dated at the point of acceptance of the loan by the borrower.
The lag between the contract date and full processing of the finance may have been blown out over this period as social distancing measures slowed valuations and process work, and banks were processing a high volume of deferrals and refinances. As sales volumes began recovering in May and June, this saw an increase in secured loans recorded across the ABS datasets.
Over the June quarter, lending to owner occupiers for the purchase of property fell -9.9%, while lending for investment property fell 12.6%. As a result, investor housing finance as a percentage of total housing finance fell to 25.4% of total lending, which is well below the decade average of 36.3%. As rental markets remain subdued and property prices fall, this share may continue to decline.
The share of first home buyer commitments as a portion of total owner occupier commitments sat at 29.5% in June, which is well above the decade average of 23.2%. The expansion of the first home loan deposit scheme and other first home buyer incentives announced over June and July is likely to see a boost in first home buyer participation over the second half of 2020.
While new housing finance took a hit in the quarter, refinancing has reached record highs. ABS data suggests the total value of externally refinanced loans increased 25.1% in May. Since March, over $40 billion in home loans has been externally refinanced. While ABS data suggests external refinancing has historically made up about 26% of total lending, the ratio was up to 43.3% in June.
The refinancing has been enabled by a record-low cash rate target of 0.25%, which is part of the comprehensive monetary response laid out by the RBA in mid-March. The actual cash rate has hovered well below the target. Since late April, the actual cash rate has fallen to around 13 to 14 basis points.
The record low cash rate setting has enabled low mortgage rates, which are summarised in the table below.
In a recent address, RBA Governor Phillip Lowe outlined there would be no near-term changes to the monetary response established in mid-March.
Specifically, he referred to lower or negative interest rates, intervention in the foreign exchange market, or changes to the term funding facility, with these sorts of interventions dependent on the global economic environment.
But Lowe stressed that there was a limit to the effectiveness of such policies to stimulate demand, with fiscal responses needed to increase demand and inflation. The dynamics in the housing finance space has amplified this, where low rates led to an increase in refinancing to save money, rather than spend money on housing.
Keeping perspective around mortgage risk and the ‘September cliff’
COVID-19 exacerbates the risk that high housing debt has to the Australian economy. In the March quarter, the ratio of household debt to annualised household disposable income sat at near-record highs of 142.0%.
With widespread unemployment, there is increased likelihood borrowers could fall behind on mortgage repayments, with the potential to generate forced sales. This in turn could increase the supply of listings, and put further downward pressure on dwelling values.
Many banks offered a pause on mortgage repayments early in the pandemic to reduce this risk. As of June 2020, the value of housing loans deferred was $195 billion, or 11% of total housing loans.
These ‘mortgage holidays’ are temporary, and were initially in place for 6 months from March 2020. This led to concerns over a ‘September cliff’, where mortgage holiday repayments and fiscal support policies would be repealed as the economy was yet to recover.
However, it is important to remember that no entity has an interest in seeing residential mortgages fall off a ‘cliff’ come September. Residential mortgage lending accounts for about 60% of bank lending. Housing accounts for about 53% of household wealth, and the accumulation of wealth in housing eases pressure on the government to fund Australians in retirement.
Thus, it is unsurprising to see that both banks and statutory authorities are looking to extend repayment deferrals where it is needed. In a letter to banks, APRA advised that for loan repayment deferrals provided prior to September 30 2020, ADIs could continue to apply a ‘temporary capital treatment’ to a total deferral period of 10 months, or up to the end of March 2021. The ‘temporary capital treatment’ means that APRA does not count a deferred loan as in arrears, or as restructured.
Interestingly, of this deferred volume, only 8% had a loan-to-value ratio of more than 90%. In addition to the national property price upswing of 8.9% between July 2019 and April 2020, it likely that relatively few of the borrowers deferring their mortgage repayments are in a negative equity position.
This is important, as recent research from the RBA has highlighted that foreclosure on mortgages is far less likely when the borrower is in a positive equity position.
It is also worth keeping in perspective that not every Australian has the same level of risk when it comes to housing and debt. For example, around 30% of Australian households own their home without a mortgage. RBA research suggests that over 50% of loans had prepayments of at least 3 months, and about 30% of loans had prepayments of at least 3 years. However, this is not to say parts of the market are without risk.
The same data set showed just under one third of mortgage holders had less than one month of prepayment, and that this group with low repayment buffers were more likely to experience financial stress.
The markets more likely to see a dangerous combination of negative equity and mortgage arrears have recently been mining regions, such as the north western region of WA.
More recently, there is evidence to suggest more severe price falls and disruptions to loan repayments could occur across inner-city apartment markets of Melbourne, and potentially Sydney. These risks are further explored in the June quarter edition of the Quarterly Economic and Property Review. .
The value of new loan commitments for housing fell sharply in May, down 11.6 per cent, seasonally adjusted, according to the latest Australian Bureau of Statistics figures released today.
ABS Chief Economist, Bruce Hockman, said: “This was the largest fall in the history of the series, driven by strong falls in the value of loan commitments for housing in New South Wales and Victoria”
The value of new loan commitments for owner occupier housing fell 10.2 per cent, while investor housing fell 15.6 per cent. The number of owner occupier first home buyer loan commitments fell 9.3 per cent.
“While reduced transactions in the housing market stifled new loan activity in May, the value of existing owner occupier loans refinanced with a different bank was by far the highest on record as borrowers responded to reduced interest rates and refinancing offers”, Mr Hockman said.
The value of new loan commitments for fixed term personal finance rose 14.5 per cent in May, seasonally adjusted, following a 24.8 per cent fall in April.
“The rise in the value of new loan commitments for fixed term personal finance was driven by a partial rebound in the value of new loan commitments for road vehicles”, Mr Hockman said.
The ABS appreciates the continued support of APRA and lending institutions in providing the data used to compile this publication and for the additional data insights being provided by lending institutions.
Introduced in the Australian Government’s 2017/2018 Federal Budget, the First Home Super Saver (FHSS) scheme is designed to make purchasing your first home easier and more affordable.
The FHSS gives you the opportunity to save money for a first home in your superannuation fund. In theory, this should help you to increase the speed at which you save money for a first home thanks to the concessional tax benefits of superannuation.
If you’d like to learn more about the scheme, take a look at our breakdown below to gain a better understanding of how it can help you as a first-time buyer.
What are the main changes that are being introduced?
The FHSS scheme was first introduced on July 1st 2017, allowing you to make concessional (pre-tax) and non-concessional (post-tax) contributions into your superannuation fund to save for your first home.
As of July 1st 2018, first-time home buyers are now able to apply for their voluntary contributions to be released to help fund a property purchase. However, there are eligibility requirements which must be met.
Who’s eligible for the First Home Super Saver Scheme?
To qualify for the FHSS scheme there are a few requirements to meet:
You cannot have made use of the scheme before.
You cannot already own property in Australia (unless you have been deemed to have suffered extreme financial hardship).
You must be over the age of 18 to access your superannuation contributions (although, you are still able to pay into any super fund should you wish to before the age of 18).
After moving into your new home, you’ll be bound by the FHSS agreement to live in your first home for at least six months of the first 12 months after owning it. There is some leeway here as you need to only move in when it’s ‘practical’ to do so.
Finally, the First Home Super Saver Scheme will not allow you to purchase a houseboat, motorhome, or vacant land.
What are the benefits for first home buyers?
The First Home Super Saver Scheme can be a huge benefit to couples looking to purchase their first home. With the new scheme, couples are able to make super contributions individually before releasing the funds at a later date to pool together.
To help make things easier for you from the start, you won’t need to open any new or separate accounts to make voluntary contributions into your super. This is provided that you’re not a sole trader or small business owner.
For most Australians, the biggest benefit of FHSS comes in its saving potential. In his 2017 Federal Budget speech, Prime Minister Scott Morrison outlined how most first-time buyers would see their savings accelerate by at least 30% under the new scheme.
How can you release your funds?
When you’re ready to access and release your FHSS contributions, you can do so up to a maximum of $15,000 from any one financial year and up to a maximum of $30,000 across every year you’ve saved. After releasing your savings, you then have 12 months to buy or construct your first home. Click here for more information on the FHSS scheme.Purchasing your first home is a big step and it’s important to always keep yourself financially protected against unexpected life events. Loan protection insurance may allow you to remain financially secure even when overcoming adversity that prevents you from making an income. Learn more about how an ALI Loan Protection Plan could provide you with the financial stability you’ll need during a time of need.
Loan Protection Plan is jointly issued by Hannover Life Re of Australasia Ltd ABN 37 062 395 484 (Death, Terminal Illness, Living and Accidental Injury Benefits) and QBE Insurance (Australia) Limited ABN 78 003 191 035 AFSL 239545 (Involuntary Unemployment Benefit). It is distributed by Australian Life Insurance Distribution Pty Ltd ABN 31 103 157 811 AFSG 226403 (ALI). ALI receivescommission for each policy sold. Any advice provided is of a general nature only and does not take into consideration your personal objectives, financial situation or needs. You should consider the Product Disclosure Statement when deciding if this product is appropriate for you.
Co-founder of Deposit Assure, Etienne Rizzo made his mark in the graphic design and advertising industries and has managed high profile brands across a diverse range of categories for the last ten years, including Disneyland Resort Paris, Heinz and Medibank.
MPA: Why should brokers be interested in deposit bonds? Etienne Rizzo: Have you ever had a client you had to say ‘ No I can’t help you!?’ If you are like me you would like to help everyone and ‘No’ is a hard word to say.
The reality is brokers will meet homebuyers who, for a number of reasons are unable to access a cash deposit to secure their new or next property purchase. They may also come across scenarios where it may be more convenient for their client’s to use a deposit bond to secure their property purchase over using a cash deposit, bank guarantee or personal loan.
Whatever the reason, if your client can benefit from deposit bond, brokers should start saying ‘yes’ I can help you. This will build trust and recognition with their clients in their ability to manage their client’s loan application (end-to-end).
Brokers are in the business of closing deals, quickly and efficiently. By having deposit bonds in your toolkit, it will allow you to close deals where it may not be otherwise possible.
Awareness about deposit bonds is extremely low. Most homebuyers that approach us have heard of them through a broker. There are property buyers out there that may be holding back on making their first or next purchase, as they are unaware about how they work and the convenience they offer. Deposit bonds can give brokers an edge with access to new markets and opportunities.
MPA: How can brokers include it in their offering? ER: With awareness so low as mentioned before, we encourage brokers to educate their clients during their initial assessment. It will be quite clear to the broker when their clients may have difficulty coming up with the cash deposit required. It is at this point that they should look at recommending deposit bonds as a feasible and cost effective solution for their clients.
Deposit bonds are an incredible aid when you have:
a client buying with the help of a family guarantor, and they’re borrowing the full amount plus costs
a client undertaking a simultaneous settlement with the sale and purchase of a property
a client borrowing the full amount for an investment pretty utilising the equity in their existing home
an SMSF seeking to buy a property, but has not yet had the cash transferred over to pay the deposit
an off-the-plan purchase with a sunset clause of 60 months or even more.
In all these cases, the one common thread is a lack of cash to pay a deposit, despite the client being perfectly creditworthy to complete settlement.
MPA: Why should brokers partner with Deposit Assure for deposit bonds? ER: I would put it down to three main benefits that you get by recommending and partnering with Deposit Assure.
First of all, we offer brokers and their client’s the easiest and simplest path to getting their deposit bond through our dedicated concierge team. Our concierge team understands, that brokers are extremely busy and deposit bonds are not a core offering of their business. By using our deposit bond concierge team, a broker simply just has to email us their client’s details, and our concierge team will do the rest, from assessment through to completing their application ready for the client to sign. No paperwork, or forms to fill out, just an efficient and reliable service that will ensure that Brokers will get all the credit and we do all the hard work!
Brokers and the clients vendors, will have the comfort of knowing that our deposit bonds are backed by the best, QBE Insurance (Australia) Limited, an A+ credit rated insurer. We have seen many leading developers specifically request that any deposit bonds are underwritten by QBE.
Lastly I would say, we offer ongoing training and support to our broker partners. We are committed to supporting brokers on their journey with ongoing training through ongoing webinars, marketing resources and ongoing support for them and their clients deposit bonds.
MPA: How great is the demand for deposit bonds among home buyers? ER: There is no doubt, awareness and understanding of this product, is low amongst homebuyers and all stakeholders involved in the property transaction. We are here to change this. Our goal is to create desire and sustained demand for homebuyers to use deposit bonds for their next property purchase with the desired outcome for homebuyers to approach brokers for new business when perhaps they would not have otherwise considered it. One way we do this is through publishing real-life stories, where we interview homebuyers to share their story, about how deposit bonds solved their very real problems.
Interestingly, the vast majority of homebuyers we engage with direct, had never heard of deposit bonds before, and it took a recommendation from a broker or a real estate agent for them to take the initiative to try to learn more about them. With awareness being so low, the opportunity for a client to take up a deposit bond once recommended is quite strong.
MPA: What does your monthly webinar cover, why should brokers tune in? ER: With our focus very much on education and training, we offer all mortgage brokers an exclusive free live training session that runs on the last Tuesday of every month. The training content has been developed by mortgage brokers for mortgage brokers and runs for 45 minutes.
Brokers will learn about all the different purchase scenarios where deposit bonds can be used to add value for their clients. We look at all the eligibility and assessment criteria required for successful lodgement of a deposit bond. We run through the benefits of deposit bonds compared with bank guarantees, cash deposits and personal loans. We also focus on why brokers should add deposit bonds to their toolkit and how they can help drive new business. The webinar is less about Deposit Assure and more about lifting the profile of deposit bonds starting with our mortgage broker friends. My promise to your readership is that if they join us for this live training, they will learn all they need to know about deposit bonds in one sitting and will learn what a powerful tool they can be in accessing new markets and how they can start offering them to their clients today. Interested brokers can save their seat here.
House prices could plummet by up to 15% over the next four years under the Labor Party, a report by SQM Research has claimed.
The report, which investigates the housing market effects of the Labor Party’s proposal to change negative gearing, forecasts house prices could drop by up to 3% in FR2018, up to 8% in FY2019 and up to 4% in FY2020.
That figure, however, forecasts the worst-case scenario and assumes there is no further cut to the cash rate.
The average loss could be as little as 4% over the same period if the Reserve Bank lowered rates by 50 basis points from their current level, according to the report.
“Our analysis suggests the market impact would last by around three years with sales falling significantly in year one and a correction to take affect with dwelling prices falling the most in the second year,” managing director of SQM Research, Louis Christopher said.
“We think there would be a possible response to this event with the RBA cutting rates, thereby mitigating some of the potential price falls. We don’t think the market will crash per say, but it will be felt by the economy. We then expect the market to return to equilibrium from year three.”
The report also warns of high risk in the off-the-plan apartment market sector.
According to the report, investors seeking to benefit from the new concession by buying new off-the-plan developments are exposed to a “substantial risk” of their property being valued below purchase price, especially if the investor is seeking to sell their investment within the first three years.
“In short, there will be a market impact if Labor’s Negative Gearing Policy is legislated,” managing director of SQM Research, Louis Christopher, said.
“We strongly encourage Labor to consider some of the investor issues, particularly surrounding the distortion their policy may create on pricing of off-the-plan developments and the likely losses investors in those properties would face come resale time to those who won’t have the tax concession.
“While we take the view that negative gearing reform is a good thing, such reform should be done as part of a wider property tax reform that should include a broad based land tax and the elimination of stamp duties. Such reform should have a phase in period of up to three years. Doing so would reduce the risks of a significant downturn which would likely have wider ramifications on the economy.”
Home loan demand improved slightly in April, new data from the Australian Bureau of Statistics has found.
According to the latest data, 57,576 home loans were written through the month of April – up 1.7% on the previous month.
However, while the number of home loans written throughout the month was up, the value of home loans written was down substantially on the month prior.
“The value of all dwelling commitments written through April was $31.99 billion – down 1.8% on March,” Mortgage Choice chief executive officer John Flavell said.
“This data would suggest there is a lot of refinancing activity taking place at the moment.”
But despite the 1.8% drop in the value of all dwelling commitments, Flavell said the fact that there was an increase in overall home loan demand would suggest the property market remains relatively robust.
As per the data, the number of loans written for the construction of dwellings was up 4.4% from last month, while the number of loans written for the purchase of new dwellings was up 3.3%.
“The number of loans written for the purchase of established dwellings was also up – climbing 1.3% throughout April,” Flavell said.
“This level of growth is quite impressive and serves to highlight how strong the Australian property market continues to be.
“Over the months ahead, I would expect home loan demand to remain strong, especially as the latest round of home loan interest rate cuts start to filter through the market.
“With many of Australia’s lenders passing on the Reserve Bank’s rate cut in May, the cost of borrowing has become more affordable than ever before – which will help to keep heat in the market.”