Greville Pabst is CEO and Director of WBP Property Group, servicing clients around Australia. He regularly provides property value and market advice to corporate and private clients as well as the media. www.wbpvaluers.com The Federal Budget's implications for property will largely be determined by its impact on the Reserve Bank's interest rate approach. The consensus view of commentators is that the actual Budget didn't match the prior tough rhetoric and rates are now more likely to go up or stay put for longer than go down in 2008.
For more on how the Budget will impact on our property markets, read the full story from Greville Pabst, director of WBP Property...
The Federal Budget's implications for property will largely be determined by its impact on the Reserve Bank's interest rate approach.The consensus view of commentators is that the actual Budget didn't match the prior tough rhetoric and rates are now more likely to go up or stay put for longer than go down in 2008.
There will be a collective sigh of relief among most taxpayers that the Federal budget wasn't too severe.Generally, the pain was minimal and restricted to those earning over $180,000 with children or those wanting to buy luxury cars. Most taxpayers are better off, typically $10 to $20 a dollar a week next year rising to around $15 to $50 a week by 2010/11.
(a) Private income is from sources other than government transfer payments, such as earnings or from interest on savings. At lower private incomes, taxable income may be higher than private income because of taxable income support
Source: www.budget.gov.au
This Budget should be expected to lift consumer confidence, which is good for the property market, but the Government's measures have likely set back the time when the inflation-concerned Reserve Bank will start dropping interest rates, and we can't rule out another rate rise.Note that the cost of a 25-basis point increase in interest rates to the median mortgage holder is around $50 a month, which can in many cases wipe out the benefit of the Budget's tax cuts.
Also worrying is the predicted up-tick in unemployment to 4.75% in June 2009 in the Budget papers (from 4.2% today). The impact on the property market is less about those who lose their jobs (though there could be an increase in mortgagee-in-possession sales) but a reduction in perceived job security causing people to put off trading property.
The Budget initiative that most directly supports the property market is the First Home Saver Account.Those saving for the deposit on their first home will be given a 17% Government co-contribution on the first $5,000 they save, and savings' interest income will only be taxed at 15% rather than at the saver's marginal tax rate.This initiative, in conjunction with existing Federal and State grants, will strengthen the position of entrants into the marketplace, though the impact of the new measure may take a few years to feed through, whilst the deposit nest eggs are being built.
Housing Affordability Initiatives in the 2008-09 Budget
2007-08 $m 2008-09 $m 2009-10 $m 2010-11 $m 2011-12 $m Total $m First Home Saver Accounts 2.7 156.0 241.2 341.4 437.5 1,178.8 Housing Affordability Fund - 52.2 77.1 77.1 152.8 359.2 National Rental Affordability Scheme - 23.5 72.2 170.1 356.8 622.6
Source: www.budget.gov.au
The Government is also committing $623 million over four years to the National Rental Affordability Scheme to encourage the construction of affordable rental housing. The Scheme will provide investors with $8,000 annually for ten years for each new dwelling that is rented out to low income tenants at least 20 per cent below the market rate. This initiative may attract investors to cheaper housing. The Government is also looking to increase supply of land by identifying surplus Commonwealth land that could be used for housing and by promising and reducing the cost of providing new housing infrastructure.
Supply vs. demand
Source: www.budget.gov.au
State Governments are also looking at assisting first home buyers more. Turning briefly to the Victorian Budget last week, the cuts in stamp duty will be a welcome relief for first home buyers, as the rate of tax will be reduced significantly for properties bought as principal places of residence. The tax relief, which can be used in addition to the first home buyers grant, will more than likely boost buyer confidence and keep the lower- to middle-end of the market performing steadily even with lower overall consumer confidence. The higher end of the market will continue to slow down due to reduced demand in this sector and general curbs on spending, although I do not foresee a correction in prices this year.
Another welcome relief for home buyers and property owners is the Victorian Government's changes to land tax: the top land tax has been reduced by 10 per cent, and the thresholds have been raised by 10 per cent. Although this may provide some immediate relief, caution must be urged as values will continue to rise and could eventually offset these cuts in the not-too-distant future.
It will be interesting to see if the other States respond to Victoria's property-related measures as they compete to have the lowest property taxes.
Long-term, I remain confident about the property market, based on increased demand caused by migration (which will increase further after the Government expanded the skilled migration program by a further 31,000 places to 133,500 places next year) and also based on the positive economic prospects for Australia.
More pressure on demand
Source: www.budget.gov.au
However, the next few months will continue to be nervy and volatile for the property market. There will be some great buying 
opportunities for those with access to cash, but it isn't a time to take on substantial debt if there is a risk you can't service it.
Whether it is buying or selling a home or for investment purposes, property decisions should be based on gathering as much pertinent information as possible. Don't rely on your instincts about the level of prices in a suburb. More than ever, price is a moving target at the moment and it's too easy to mis-price and overpay or be underpaid.
Please click here for more information about professional property services
The players advanced strategies THE ROAD TO WEALTH DVD SERIES
Let tax experts Ed Chan, David Naylor and Tony Melvin show you how to structure your finances and accumulate property using little or none of your own money in this informative DVD series.
Buy 1, 2 or all 3 sets – up to 8 DVD's (over 11 hours in total) plus workbooks.
Click here for more details
ATTEND A FREE BOARDROOM PROPERTY BRIEFING
Click here to find out more about Metropole's free Saturday morning property briefings - held in Melbourne, Sydney, Brisbane and Perth.
Join us as our buyer's agents show you how they pick top performing investment properties. Click here for details or to register your interest.