Are we looking at the end of the property market downturn? Take a look at what the experts have to say.

For quite some time now, property investors have worried about some of the biggest Australian property markets. 2018 marked a year of property downturn that discouraged many people who wanted to get in the game. What’s more, even some experienced investors chose to throw in the towel.

Wealth for Life Good Year
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But is there a good reason for this? 

Not really. This is especially true now that the Coalition was victorious in the elections. Combined with a few other factors that make the market more favourable, this is a sign that it might be a great time to invest.

While many have been pessimistic about property investing, the situation is slowly turning around. Over the next couple of months, we’ll likely see a handbrake on the downturn. 

Some of the markets are already seeing signs of recovery. And experts think that the other markets will see an increase much sooner than most people think.

So, what can we expect to happen in the foreseeable future? Let’s see some of the main predictions.

1. First Homebuyers’ Scheme

Saving up for a deposit on your first home can be a big challenge. You need to make some sacrifices and it might take years before you can get to that 20% threshold. This is often the biggest obstacle that first home buyers face.

The Coalition wants to change this. They promised to help 10,000 people buy their first home much more easily.

Wealth for Life Home Deposit
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More specifically, you won’t need to have a 20% deposit anymore. Instead, the government will top off your 5% with a guarantee up to the 20% deposit. If you save that 5% and don’t make more than $125,000 as a single or $200,000 as a couple, you can apply for this scheme.

Treasurer Josh Frydenberg says that this will make it easier for young buyers to enter the property market. In his words:

‘There has been a fall in the number of people who are first-home buyers in that particular age bracket and we are trying to stem that development by enabling younger people to get a foot in the door.’

The scheme could help first home buyers save around $10,000, as they wouldn’t have to pay lenders mortgage insurance. So if you’ve been thinking about buying your first home, this can be a great benefit you’ll want to take advantage of.

As far as the big picture goes, it’s safe to say that this will reignite competition in the property market. Naturally, this is likely to lead to an increase in housing prices.

2. Cash Rate Cuts

On June 4, Governor of the RBA Philip Lowe announced a lowering of the cash rate to 1.25%. This is the first time that the cash rate has changed since August 2016. This change can translate into more opportunities for those who want to invest.

Wealth for Life Bright Future
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Then, it dropped again in July to 1%. 

Some argued that the reason for the rate cut was the deterioration of the Australian economy. But Lowe says that this isn’t the case.

‘The Australian economy is still expected to strengthen later this year, supported by the low level of interest rates, a pick-up in growth in household disposable income, ongoing investment in infrastructure and a brighter outlook for the resources sector,’ he comments.

Lowe also said that the cut ‘should be fully passed through to variable mortgage rates.’ In his opinion, this is the way for the Australian economy to truly benefit from the cut. And that’s how it’ll benefit property investors.

It seems that we’re looking at more affordable mortgages in the near future. This is another factor that should increase competition and drive up prices. But that’s not all, as there’s another potential major benefit to look forward to.

3. Looser Lending Standards

As you might know, banks have been quite tough on borrowers. Since 2014, every bank has had to stress test someone’s borrowing capacity against an interest rate of 7.25%. Either that or add a 2% buffer on the actual interest rate.

Wealth for Life lending standards
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While this serves to make sure that a borrower could meet loan repayments, many experts agree that it’s way too rigorous. Interest rates are generally much lower than 7.25%, to begin with.

Luckily, this policy appears to be coming up against its expiration date. Recently, the APRA proposed to remove this rule. It would mean a much looser standard that would make it much easier for people to get a loan. 

Of course, this doesn’t mean that the APRA will make it too easy. As chairman Wayne Byres commented:

‘The changes, while likely to increase the maximum borrowing capacity for a given borrower, are not intended to signify any lessening in the importance that APRA places on the maintenance of sound lending standards.’ 

He explained that the change simply acknowledges the fact that a uniform 7% floor can’t apply to all products.

Be that as it may, it’s safe to assume that the change will encourage many new investors. While the 7.25% floor might not have directly caused the market downturn, it will play a role in the recovery.

4. Removal of the Property Tax Concessions Threat

With the Coalition’s victory, negative gearing won as well. Labor threatened to completely reform the tax law regarding negative gearing. Tax concessions would’ve plummeted, which would make the downturn even worse. 

Property Investment Professionals of Australia’s chairman Peter Koulizos was against this. At the time when there was still a threat, he explained:

‘I know they’ve got incentives there for large super funds to provide affordable housing, but for the average mum-and-dad investor, the landscape will change significantly.’

Koulizos noted that the government would also be at a loss when it comes to the federal budget. They collect much more in CGT revenue than they lose to negative gearing tax deductions. A big portion of that revenue would disappear if negative gearing only applied to brand-new property. 

What this means is that everyone would’ve lost in this scenario. Luckily, the Coalition plans to leave negative gearing rules alone. This gives people the confidence they need to keep investing. 

Should You Make a Move?

2019 is shaping up to be a good year for property investors, and his trend will likely continue in 2020. The Coalition’s victory seems to be a timely shot in the arm the property market needed. 

Of course, the APRA’s loosening standards, the RBA’s rate cut, and other factors help as well. All in all, it’s safe to say that property investors have a lot to look forward to.

But does this mean it will be easy to succeed in property investment? Not really. While it won’t be as hard, there are still many things that investors need to think about before they start. 

This is where Wealth for Life can help. Contact us if you want to see how to take full advantage of the recent changes.

Are we looking at the end of the property market downturn? Take a look at what the experts have to say.

For quite some time now, property investors have worried about some of the biggest Australian property markets. 2018 marked a year of property downturn that discouraged many people who wanted to get in the game. What’s more, even some experienced investors chose to throw in the towel.

Wealth for Life Good Year
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

But is there a good reason for this? 

Not really. This is especially true now that the Coalition was victorious in the elections. Combined with a few other factors that make the market more favourable, this is a sign that it might be a great time to invest.

While many have been pessimistic about property investing, the situation is slowly turning around. Over the next couple of months, we’ll likely see a handbrake on the downturn. 

Some of the markets are already seeing signs of recovery. And experts think that the other markets will see an increase much sooner than most people think.

So, what can we expect to happen in the foreseeable future? Let’s see some of the main predictions.

1. First Homebuyers’ Scheme

Saving up for a deposit on your first home can be a big challenge. You need to make some sacrifices and it might take years before you can get to that 20% threshold. This is often the biggest obstacle that first home buyers face.

The Coalition wants to change this. They promised to help 10,000 people buy their first home much more easily.

Wealth for Life Home Deposit
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

More specifically, you won’t need to have a 20% deposit anymore. Instead, the government will top off your 5% with a guarantee up to the 20% deposit. If you save that 5% and don’t make more than $125,000 as a single or $200,000 as a couple, you can apply for this scheme.

Treasurer Josh Frydenberg says that this will make it easier for young buyers to enter the property market. In his words:

‘There has been a fall in the number of people who are first-home buyers in that particular age bracket and we are trying to stem that development by enabling younger people to get a foot in the door.’

The scheme could help first home buyers save around $10,000, as they wouldn’t have to pay lenders mortgage insurance. So if you’ve been thinking about buying your first home, this can be a great benefit you’ll want to take advantage of.

As far as the big picture goes, it’s safe to say that this will reignite competition in the property market. Naturally, this is likely to lead to an increase in housing prices.

2. Cash Rate Cuts

On June 4, Governor of the RBA Philip Lowe announced a lowering of the cash rate to 1.25%. This is the first time that the cash rate has changed since August 2016. This change can translate into more opportunities for those who want to invest.

Wealth for Life Bright Future
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

Then, it dropped again in July to 1%. 

Some argued that the reason for the rate cut was the deterioration of the Australian economy. But Lowe says that this isn’t the case.

‘The Australian economy is still expected to strengthen later this year, supported by the low level of interest rates, a pick-up in growth in household disposable income, ongoing investment in infrastructure and a brighter outlook for the resources sector,’ he comments.

Lowe also said that the cut ‘should be fully passed through to variable mortgage rates.’ In his opinion, this is the way for the Australian economy to truly benefit from the cut. And that’s how it’ll benefit property investors.

It seems that we’re looking at more affordable mortgages in the near future. This is another factor that should increase competition and drive up prices. But that’s not all, as there’s another potential major benefit to look forward to.

3. Looser Lending Standards

As you might know, banks have been quite tough on borrowers. Since 2014, every bank has had to stress test someone’s borrowing capacity against an interest rate of 7.25%. Either that or add a 2% buffer on the actual interest rate.

Wealth for Life lending standards
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

While this serves to make sure that a borrower could meet loan repayments, many experts agree that it’s way too rigorous. Interest rates are generally much lower than 7.25%, to begin with.

Luckily, this policy appears to be coming up against its expiration date. Recently, the APRA proposed to remove this rule. It would mean a much looser standard that would make it much easier for people to get a loan. 

Of course, this doesn’t mean that the APRA will make it too easy. As chairman Wayne Byres commented:

‘The changes, while likely to increase the maximum borrowing capacity for a given borrower, are not intended to signify any lessening in the importance that APRA places on the maintenance of sound lending standards.’ 

He explained that the change simply acknowledges the fact that a uniform 7% floor can’t apply to all products.

Be that as it may, it’s safe to assume that the change will encourage many new investors. While the 7.25% floor might not have directly caused the market downturn, it will play a role in the recovery.

4. Removal of the Property Tax Concessions Threat

With the Coalition’s victory, negative gearing won as well. Labor threatened to completely reform the tax law regarding negative gearing. Tax concessions would’ve plummeted, which would make the downturn even worse. 

Property Investment Professionals of Australia’s chairman Peter Koulizos was against this. At the time when there was still a threat, he explained:

‘I know they’ve got incentives there for large super funds to provide affordable housing, but for the average mum-and-dad investor, the landscape will change significantly.’

Koulizos noted that the government would also be at a loss when it comes to the federal budget. They collect much more in CGT revenue than they lose to negative gearing tax deductions. A big portion of that revenue would disappear if negative gearing only applied to brand-new property. 

What this means is that everyone would’ve lost in this scenario. Luckily, the Coalition plans to leave negative gearing rules alone. This gives people the confidence they need to keep investing. 

Should You Make a Move?

2019 is shaping up to be a good year for property investors, and his trend will likely continue in 2020. The Coalition’s victory seems to be a timely shot in the arm the property market needed. 

Of course, the APRA’s loosening standards, the RBA’s rate cut, and other factors help as well. All in all, it’s safe to say that property investors have a lot to look forward to.

But does this mean it will be easy to succeed in property investment? Not really. While it won’t be as hard, there are still many things that investors need to think about before they start. 

This is where Wealth for Life can help. Contact us if you want to see how to take full advantage of the recent changes.

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