Queensland’s oversupply of housing may have a benefit in protecting the state from copping a full boom-and-bust property cycle over the next few years, Deloitte’s June Business Outlook report says.

Describing Australia’s national outlook as facing a “mini credit crunch” due to banks being punctilious about lending because of the Royal Commission, the report showed the balance of pressured house prices and rising energy prices as “a challenge”.

Deloitte partner and principal report author Chris Richardson said Sydney and Melbourne’s extreme house prices were finally showing benefits for Queensland as more people looked north.

“The Sunshine State is now well and truly through the worst of its mining construction downturn,” he said.

“Eye-watering house prices south of the border are finally sending more economic refugees north to Queensland, while gas exports are leaping and tourists also continue to flock to the state.”

With more and more people moving to Queensland, the June 2018 Business Outlook report, released on Monday, notes the state now has the third-fastest rate of population growth behind Victoria and the ACT.

In 2016, the state’s housing construction went far beyond the state’s population growth, sparking concerns about the long-term state of the housing sector.

“The large increase in supply relative to demand meant that house price growth never reached the heights seen in Sydney or Melbourne,” the report stated.

“But a smaller boom also means less risk in the bust: housing markets in south-east Queensland are less likely to experience a significant retreat in prices now that credit conditions have turned.”

Another report released on Monday, a BIS Oxford Economics report Building In Australia 2018-2033, warned that nationally Australia’s building commencements were facing a sharp downturn.

That report warned Queensland could expect a -15 per cent correction in the number of residential buildings beginning construction.

BIS Oxford Economics associate director of construction Adrian Hart said there was potential for the downturn to worsen if investor demand or net overseas migration weakened.

“With stock deficiency to start rising nationally again from 2019-20, we anticipate a renewed upswing in residential building starts through the early to mid-2020s,” he said.

In 2008, more than 45,000 new dwellings began construction in Queensland – 10 years on, that number had fallen to 40,950.

BIS Oxford’s report predicted further falls in dwelling commencements, down to just fewer than 35,000 in 2020 before recovery began to bring commencements back up towards 43,000 in 2023.

Deloitte’s report found Queensland’s job growth was also encouraging more people into the workforce – a growth that had little impact on the unemployment rate.

Jobs in government sectors such as public health, education and public service all led the charge, thanks to a combination of the National Disability Insurance Scheme roll-out and the state’s popularity with international students.

Those factors combined with tourist occupancy rates hitting their highest rate since 2013 meant Queensland on the whole was supporting a stronger business outlook.

Despite those positive signs, Deloitte found retail remained uninspired, alongside wage growth.

Retail spending nationally has been particularly strong in clothing and apparel, as online shops competed fiercely with department stores for the same products.

“Energy prices continue to outpace headline consumer inflation. This creates a double-whammy for retailers, as it hits both their operating costs as well as the consumer hip pocket,” Deloitte found.

“Meanwhile, the improved outlook for wages is also a double edged sword for retailers – it provides improved buying power for consumers but will also increase their operating costs.”

But, overall, gas exports would help keep Queensland high on the ladder for state growth, the report said, alongside New South Wales and Victoria, while infrastructure spend would reach nearly $46 billion over the next four years.

Strong interest in gas would put pressure on energy prices, Deloitte found, as the flow-on effects from Venezuela and Iran reducing their oil supply, and higher gas prices on Australia’s east coast, would hit industrial energy users.

SMH/ 23 July 2018

The Reserve Bank is carefully watching weakness in home prices in Sydney and Melbourne given the impact that could have on household wealth.

Head of economics analysis Alex Heath emphasised that recent economic data had been generally positive and the bank was more confident about the outlook for investment outside the mining sector.

However, she noted housing construction had plateaued, albeit at high levels, and was unlikely to contribute much to economic growth over the next couple of years. The pipeline of work yet to be done was particularly strong in NSW and Victoria, where home prices had softened markedly in recent months.

“Housing price growth has been strong until recently in Sydney and Melbourne, where population growth has been strong,” Dr Heath told a conference at the Urban Development Institute of Australia in Wollongong on Thursday.

“Given that housing accounts for around 55 per cent of total household assets, we are paying close attention to these developments.”

Dr Heath added that she expected demand for housing to remain strong overall because population growth was also likely to remain strong. Australia’s population is growing around 1.6 per cent a year, more than twice the average of the developed world, largely due to immigration, notably of people on student visas.

Data out this week from property consultant CoreLogic showed home prices in Sydney were down 4.5 per cent in June from a year ago, the sharpest decline since the global financial crisis of 2008. Annual price growth in Melbourne had slowed to just 1 per cent, from a double-digit pace last year.

And the slowdown is likely to continue this year, with property transaction volumes dropping as much as 5 per cent, according to Deloitte’s annual Mortgage Report.

Deloitte financial services partner James Hickey said uncertainty around possible new rules and legislative change as a result of the ongoing banking royal commission could dampen the market, but he characterised the slowdown as a healthy pullback from unsustainable levels of recent years.

“When placed into perspective, the strong lending growth of the 2013 to 2016 period was never going to be sustainable in the long term,” Mr Hickey said. “The market recognises the need to take stock and find a new sustainable base for the long term.”

Regulatory attention from APRA and ASIC could act as handbrakes on the market beyond 2018, with lenders obliged to undertake more thorough checks on customers’ circumstances and more detailed explanations about their loans.

Deloitte financial services partner Heather Baister said banks and brokers are already looking into ways of addressing issues of transparency and accountability around mortgage lending.

“In the future, lenders will have to consider how they can demonstrate that the customer has a true understanding of their product,” Ms Baister said. “This will mean a more thorough assessment process, tailored to individual customers and their understanding of the loan; this will inevitably slow market growth.”

However, the resulting competition between lenders might open the door for more first-time buyers and owner-occupiers.

Deloitte Access Economics director Michael Thomas said Australia’s residential market was still largely supported by solid underlying demand.

 

“Taken together with the outlook for interest rates, slowing house price growth moderating the prospect of further capital gains,[and] restrictions on lending such as on interest-only loans and loans to investors as well as to lending to foreign investors, we expect a period of moderation rather than an abrupt adjustment,” Mr Thomas said.

 

SMH / 5 July 2018

If you’ve been waiting in the wings for the chance to buy a bigger property this year, you might be in luck.

And if you’ve been wondering whether it’s the right time to downsize, the federal government is about to give you a push out the door.

From July 1, a wave of family homes is set to hit the market, with the federal government’s new downsizer incentive kicking in.

The scheme allows homeowners over 65 to use the proceeds from selling their home to make a one-off deposit of up to $300,000 into their superannuation fund. The limit applies per person, meaning a couple can contribute up to $600,000.

What does it mean for downsizers?

The incentive is designed to encourage older homeowners to sell properties that no longer suit their needs by allowing them to take advantage of the tax benefits of investing surplus money into super.

Normally, people over 65 face restrictions on voluntary super contributions, with earnings from contributions above their cap taxed at a higher rate.

The downsizer contribution does not count towards contribution caps, meaning homeowners taking advantage of the scheme get a tax discount and could end up with more money in retirement.

“It’s a really  really great way for older Australians to top-up their super,” H&R Block director of tax communications Mark Chapman said. “Once it’s in super, it’s effectively cash, and once you get to over 65 you can then draw down on that super and live on it in a very tax attractive way.”

Depositing the surplus into super can make more sense than putting it towards other investments, where earnings are taxed at the investor’s marginal tax rate.

“The income within super is taxed at 15 per cent, which is a very low rate,” he said. “Once you’re over 65 you can effectively withdraw the money out tax-free as a lump sum or an income stream.”

The new measures could help some homeowners more than others, according to Mr Chapman.

“It will particularly benefit those people who are asset rich but cash poor,” he said.

“If you’re retired, then chances are you’re not working as much and not bringing in much in the way of income. Maintaining that house can actually be a chore and a financial burden.”

What does it mean for upsizers?

The measures could increase the supply of homes for younger families by reducing barriers preventing older homeowners from selling, and allow more movement within the property market, according to Property Mavens founder Miriam Sandkuhler.

“It’ll free up bigger properties, which people below are going to upsize into,” she said.

However, an influx of downsizers could create more competition for affordable properties.

“First home buyers and first time upgraders who are borrowing to buy will struggle to compete with cashed up downsizers looking to buy the same stock – smaller houses and single storey units and villas,” Ms Sandkuhler said.

“While the legislation benefits older Australians, it will be to the detriment of Gen X and Y.”

Older homeowners are already beginning to take advantage of the scheme, with Richard Matthews Real Estate director Richard Baini reporting an increase in over-65 vendors listing their homes.

“There’s been a significant shift,” he said. “A lot of the properties I’m selling at the moment are for people in that bracket.”

“It’s a way to dangle the carrot for homeowners.”

Is the scheme worth it?

Despite the tax benefits, downsizers should carefully consider whether the scheme will be effective for their personal situation.

Taking into account selling costs for the old property and stamp duty for the new home, the amount of capital released may be less than expected.

And for homeowners moving from a dated family home to a modern and well-located apartment, there may not be a big difference between the prices of the two properties.

It’s also possible that selling the family home could make some people ineligible for the age pension, according to Mr Chapmain.

“Your family home is exempt from your assets when you’re looking at the pension tests, but cash is not exempt,” he said. “By disposing of your house and liquidating that into cash, you need to consider how that will affect your eligibility.”

“Two people you need to speak to are first of all your accountant to talk you through the tax side of things, and secondly a financial planner who can advise you on what the impact might be.”

Demand from downsizers could actually push up prices of large, modern or exclusive apartments, according to Mr Baini.

“They might be looking to downsize, but they don’t want to go down in quality,” he said.

What are the rules?

-Homeowners must be 65 years or older at the time of the contribution.

-The home must have been owned for at least 10 years prior to sale.

-The downsizer contribution must be made within 90 days of settlement.

-The home must be in Australia.

-Houseboats, caravans and mobile homes are excluded.

-Homeowners can only make a downsizer contribution from the sale of one home.

-The proceeds of the sale must be either exempt or partially exempt from capital gains tax under the main residence exception.

-Homeowners aren’t required to purchase another dwelling.

-Spouses of homeowners can claim the contribution, even if the house is owned in just one spouse’s name.

-The contribution can still be claimed if ownership has transferred from one spouse to another due to death or divorce, as long as the combined period of ownership is at least 10 years.

Further information can be found on the ATO website.

SMH/ 01 July 2018