Winners and losers in Canberra's post-budget property market

Last week was a big one for major announcements; the federal budget, the election date and the Reserve Bank’s decision to cut interest rates to a record low. While much of this information was anticipated, how will these factors work together to affect different sectors of the housing market? We ask the experts what’s ahead for the Canberra market.

Investors

If we had to declare a winner for last week’s announcements, it would certainly be investors. Investors are set to benefit from interest rates being cut to 1.75 per cent and the budget has left negative gearing untouched.

“The budget combined with lower interest rates can only be a positive for investors,” Domain Group senior economist Dr Andrew Wilson says.

“If cuts are passed onto investors it will certainly increase investor activity.”

Independent Property Group director of project marketing Harriden says no changes to negative gearing is a good thing for everyone affected by investment property, whether they are investors, tenants or those in the construction industry.

“The main point of the budget was that it didn’t touch negative gearing,” Harriden said.

“I’m a great supporter [of negative gearing] because it stimulates not only investment in property, but it’s a job creator because it stimulates the building industry. It also enables mums and dads to buy an investment property.”

While a change in government could see changes to negative gearing, the fact that it will be lifted via a “sunset clause” and take 12 months to take effect, could spur short-term activity, according to Wilson.

“Buying now would suit investors who want to keep negative gearing if the ALP comes in.”

First-home buyers

While investors were the winners of last week’s announcements, first-home buyers were among the losers.

“There’s not a lot of good news in the budget, or the nature of the economy for first-home buyers, who just seem to be a marginalised group in the housing market now,” Wilson says.

Wilson says while investors are set to benefit from the budget and economic climate, first-home buyers are usually competing for the same types of properties and can be sidelined.

While all property owners will benefit from cuts to interest rates, Wilson says they have little to do with those who are trying to get into the market.

“It’s not so much the capacity to pay off the loan that’s the issue, it’s more the capacity to save,” Wilson says.

“Low interest rates will help investors, rather than first-home buyers, because investors tend to compete with first-home buyers.”

Though the news wasn’t good for first-homes buyers, Wilson says there’s little that can be done in the short-term to help this sector of the market.

He says long-term solutions, such as a stronger economy and higher levels of supply, will have a larger impact on first-home buyers.

“Even in a low interest rate environment, it’s saving that deposit that’s the problem,” Wilson says.

“First-home buyers have to rent for longer, which puts pressure on the rental markets and the capacity to save becomes tougher.”

Tenants

While those hoping to buy their first property make up a large proportion of the rental market, tenants are similarly affected by government decisions and the strength of the economy.

Wilson says there is a shortage of rental properties in Canberra and the current vacancy rate is “quite sobering”.

“A chronic shortage of rental properties now will only put upward pressure on rents,” he says.

“The building boom for apartments seems to have been soaked up quite quickly. It means that supply is not going to offer relief for tenants, particularly for units.”

CoreLogic’s April Rent Review, released on Tuesday, revealed that Canberra was the only capital city where rental growth is accelerating.

However, Harriden says negative gearing remaining untouched would be a positive for tenants as it encourages investment and provides more options for renters.

“Canberra has a transient population and a lot of people rent here,” he says.

Real Estate Institute ACT president Frank Pompeani says further opportunities for investors will create a more positive rental environment for tenants.

“The more investors there are, the more opportunities there are for tenants to have choice – it’s a supply and demand issue,” Pompeani says.

Further supply, particularly the construction of apartments, is what is needed to buoy Canberra’s housing market, particularly the rental and first-home buyer sectors, according to Wilson.

Mortgagees

Those paying off their mortgage had reason to celebrate last week, with many home owners falling within the groups that benefited from the budget.

“Advantages for tax relief would certainly be directed to established home owners and that comes from improving their income,” Wilson says.

“Small businesses and those that are incorporated will see a benefit, of course, because it improves their income level.”

Canberra’s established home owners are more likely to earn more than $80,000 a year than first-home buyers and have their tax rate cut. Coupled with lower interest rates, Wilson said many mortgagees enjoyed a “quasi-pay rise” last week.

Wilson says most mortgagees won’t be increasing their repayments in line with this “pay rise”, however the rates cut means they’ll be able to spend less time paying of their house.

“Mortgage holders tend to just keeping paying the same amount, rather than use the reduced base rate to actually spend and that means they pay off their loan quicker.”

Sellers

Wilson says it’s hard to predict how the election will affect sellers, as we’re approaching a time of year that typically sees fewer homes on the market.

“The number of auctions were quite low in Canberra last week and it was a little bit the same everywhere.”

While some buyers and sellers will take a “wait-and-see” approach to the election, Wilson says there will be investors hoping to buy sooner, rather than later.

“This election has some key differences in terms of the housing market.

“The ALP are proposing a change to negative negative gearing and there may be investors looking at getting in early.”

Pompeani says Canberra is in a strong position, regardless of which party is elected.

“The election is topical, but the number of sales don’t alter that much during the election period,” he says.

“Buyers still look forward to looking for their next opportunity or move.”

Harriden says an impending election used to have an effect on the housing market, but things have changed in the past decade.

“Elections used to scare people and now they don’t,” he says.

“Whether it’s a federal Labor or Liberal government, there’s not that scare factor. Canberra people are obviously very politically attuned and it’s a much more resilient city.”

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