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Michael Marquette: In what can only be described as a momentus day for Australian real estate, most of the country’s largest lenders have already chosen to pass on the majority of the 1% interest rate cut to borrowers.
The Commonwealth Bank, National Australia Bank and Westpac have reduced their variable rate by 0.8% of the full 1% and Aussie Home Loans signaling that it will pass on a 0.75% reduction, this is the stimulation that the Australian property marketed needed. Therefore, we welcome this fantastic news.
With Treasurer Wayne Swan demanding that Banks pass on the rate cut in full once prevailing conditions allow the magnitude of the cut cannot be understated.
It is clear that the United States, Japan and the European Union are staring down the barrel of recession and the bold move by the Reserve Bank is aimed at doing everything possible to avoid recession in Australia.
With the price of oil plummeting in line with fears of a global recession, inflationary pressures which have existed in the economy are reducing.
With the largest interest rate cut since 1992 and confidence in the stock market eroded, real estate is well placed to benefit as the chosen investment strategy for many. Falling interest rates, increased rental yields, scarcity of housing and the poor performance of the stock market are all positive indicators for property owners and investors.
I believe there will be an increase in the number of self managed super funds (SMSF) set up to invest in property. Many people are concerned and frustrated that so much money has been lost by funds and are determined to be able to exert influence in investing money in the future. This will certainly assist demand in all real estate sectors. Australian property is well placed to do well in spite of prevailing world conditions.
The budget has introduced a range of measures to address housing affordability.
- The Government is committing to spend $623 million over four years on a rental affordability scheme that will stimulate the construction of new rental properties by providing investors with $8000 a year for 10 years for each property that they rent out for 80 per cent of the market rent.
- A fund for affordable housing worth $500 million over four years will also help to increase the supply of new housing by assisting with surrounding infrastructure and cutting obstacles to development approvals.
- A national housing supply council will oversee the adequacy of the nation’s housing stock for the next 20 years, and the Government is looking for surplus Commonwealth land that could be used for new housing.
Housing Industry Association Managing Director Dr Ron Silberberg said the $21.7 billion surplus would help mitigate interest rate pressures and investment in infrastructure and skills would help reduce inflationary constraints and increase productive capacity.
“Measures aimed at boosting the supply of new housing along with desperately needed urban infrastructure will assist in pegging the gap between underlying demand and current production,” Dr Siberberg said in a statement.
Housing commitments in the budget include $500 million over five years for a housing affordability fund, $623 million over four years for a national rental scheme, $1.17 billion over five years for first home saver accounts and $10 million to assist with financial counselling for Australians facing mortgage and rental stress.
The government had increased investment in skills to address immediate and longer-term needs for tradespeople for the housing industry, according to HIA.
HIA also said it applauded measures aimed at making cities more efficient and productive through new investment in transport, community facilities and services is.
The Federal Government has made its centre-piece scheme to tackle housing affordability more equitable.
The initial plans for the Rudd Government’s first-home saver account scheme gave more benefits to higher-income earners than it did those most in need of assistance.
In the 2008 Budget, however, it has outlined a revised scheme that would help all first-home buyers regardless of how much they earn.
Under the scheme, buyers aged between 18 and 65 will enjoy government contributions to special savings accounts.
- The Government will chip in with a 17 per cent contribution on the first $5000 made each year into the account, with a maximum benefit of $850 a year.
- Savers will not pay tax on contributions to their accounts. And when they use the pot of money for a deposit on a home, the withdrawal will be tax free.
Such accounts have been criticised as doing nothing to improve the supply of new housing, which could mean they just lead to even higher house prices.
The scheme announced in the budget sets a common contribution across all pay scales. Interest received on money in the savings account will be taxed at 15 per cent.
The cost of the scheme is put at $1.2 billion over four years.
People wanting to set up a savings account would not need a minimum deposit.
However, to withdraw funds minimum contributions of $1000 need to be made in at least four separate financial years.
The home-buyer will have to live in the house for at least six months during the first year of ownership or face penalties.
Savers can also close their accounts at any time and tip the balance into superannuation.
A couple on salaries of $61,000 who save 10 per cent of their income would benefit from using the accounts by about $12,600 after five years.