Forget record auction clearances and bigger numbers at open homes on a Saturday morning. The decisive clue that the property market is on a strong run comes with the renewed focus on negative gearing and capital gains tax (CGT) discounts and how these legitimate tax breaks are making it tough for first time buyers.
It also amuses me that these tax strategies are available to those buying into other asset classes such as shares, yet real estate investors always seem to cop the majority of the flak for doing their best to create some genuine wealth for themselves and their families.
Likewise, mainstream property investors are hardly super-wealthy, with many owning no more than a single asset – however this point never seems to find its way into print. I also agree with AMP Chief Economist Shane Oliver, who says ‘the real problem is a lack of new housing’. Public think tank McKell Institute estimates that only 15,000 new homes are being built in NSW, which is less than half the number needed to meet population growth projections.
My real estate career started in 1986, and hand on heart, I can say that we’ve probably never seen investors as dominant as they are today. Clearly, the combination of historic low interest rates, favourable rules for self-managed super funds and a shortage of properties for sale are currently delivering excellent investor conditions.
On balance, housing is by far Australia’s largest investment asset, estimated by some commentators at more than $5 trillion, and investors have played a major part in creating this wealth. Subsequently, turning the tap off on legitimate tax breaks at a time when the economy is flapping around for a suitable replacement for the resources boom doesn’t make a lot of sense to me. I don’t really think tinkering with tax breaks will provide a long term solution to the plight of first home buyers.
Don’t get me wrong, I am very concerned that fewer first timers are buying into bricks and mortar. For instance, recent data from the Australian Bureau of Statistics (ABS) showed that first home buyer levels represent just 13.7 percent of new mortgages in August 2013, down from 14.7% in July 2013.
Still there are always opportunities for first home buyers to take the plunge into bricks and mortar – while it’s also fair to say that buying a first home has always delivered its share of challenges. For example, when I dipped my toe into the market for the first time in the late 1980s, the banks made first home buyers jump through many hoops when applying for a mortgage. The big lenders were possibly even more dominant than they are now – the non-bank lenders were still years from launching their successful assaults on the bank’s mortgage market monopoly, while interest rates hit 18 and 19 percent in the late 1980s.
Today, housing affordability is an issue, and to take the first step on the property ladder will involve taking a flexible approach. Typically this means looking for more affordable homes in suburbs or towns that may not have originally been on your shortlist, while the often juicy government subsidies involved in buying or building a new property are also worth some consideration.
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Angus Raine is a leading commentator on the Australian property industry and has been CEO of the Raine & Horne property group since 2006.
Mr Raine started his real estate career over twenty six years ago, previously working with three blue-chip international real estate firms, before becoming director of Raine & Horne Holdings Pty Limited in 1998.
Mr Raine is an accomplished real estate specialist and his academic and industry qualifications include a Diploma of Business (Valuation) and a Diploma of Business (Franchising). He is also a registered valuer, a Fellow of the Australian Property Institute, Member Royal Institution of Surveyors (MRICS), and a licensed real estate, stock and station business agent.
Angus is a Graduate of the Harvard Business School’s Owner/President Management Programme, and has a professional certificate in Advanced Corporate Real Estate (API/UWS).
Since 2000, Mr Raine has been a committee member of the Family Business Association’s New South Wales chapter.