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Against all the odds, Australia is enjoying a mini boom at the lower end of the property market – and there are signs it’s no temporary upswing.
First home buyers have flooded into the market, snapping up every half decent property under the $600,000 mark. There is no doubt the beefed-up First Home Owners Grant (FHOG) is behind the rush, but the question is: how long will it last?
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Many in the industry – and indeed borrowers – hope the federal government will extend the FHOG beyond the July cut-off date. There’s a good chance it will.
The last FHOG boost was in March 2001 in a bid by the government to offset the impact of the newly introduced GST and stimulate activity in the construction industry. In October that same year the government extended the grant but at the reduced rate of $10,000, down from the initial $14,000.
Depending on domestic and global economic conditions the government may well employ this approach again. If the grant is not extended it is reasonable to assume that it will be because the country’s economic outlook has improved significantly.
While any incentive aimed at stimulating buyer activity is welcome, it is important to remember that the real driver of current activity is strong market fundamentals: rock bottom interest rates and rising rental costs.
Regardless of whether the incentives continue to be available, activity is likely to pick up across many segments of the property market throughout the year. The good news for brokers is that the spectre of rising unemployment will do little to take the momentum out of the market. If anything it may increase it.
Rising unaffordability stifled property price growth and buyer activity in 2008 with the highest interest rates in over 14 years. But while our economy teeters there is virtually no danger that rates will increase in the near term.
Rates may yet fall to as low as 2 per cent during the present cycle while BIS Shrapnel has predicted that rental costs will continue to rise by as much as 25 per cent over the next three years. For many investors the stability of bricks and mortar will prevail over choppy share markets and there’s every indication that this will remain the case for the foreseeable future.
First time buyers may have led the charge back into property early this year but other segments are sure to follow. Investors are waiting on the sidelines and are likely to account for a growing share of business this year, with other segments following. For brokers, this is indeed welcome news.
