The strength of our real estate markets is being supported by population expansion
We are adding over 400,000 people to our population every year; however, the majority of this growth is occurring in our three major capital cities, which is driving up the need for housing.
The primary reason for this is that a large percentage of migrants to Australia are of the age to start families, and the vast majority of them have some level of education and are come for work.
In the beginning, they are looking for somewhere to rent, but later on, they decide to purchase their own homes. When it comes to swings in pricing, the real estate market is driven by a few particular forces; but, at the end of the day, it all boils down to a straightforward competition between supply and demand.
Prices tend to go up whenever there is a big demand for anything. When there is less of a demand for anything, prices tend to drop. This pendulum is driven by population increase and migration, which is something that can be easily demonstrated by looking back at statistics. For example, between the years 2002 and 2004, there was a large increase in the number of people moving between the states of Australia.
The end effect was a rise in median property prices of more than 20 percent, which is a pattern that is beginning to repeat itself as people once again begin to relocate toward Brisbane. In some other states, real estate prices have benefited significantly from increases in population. Over 100,000 new inhabitants moved into Victoria each year between 2011 and 2016, contributing to the city's significant population growth during this time period. While the national average for population growth in Australia is approximately 1.5 percent, Victoria experienced an average growth rate of 9.7 percent over this time period. As a result,
The median price of a home in Melbourne skyrocketed and has remained elevated ever since.
Because of immigration and business relocation, similar patterns have been observed in Sydney and Perth. These cities have experienced population growth as a result. It is vital to take into account this aspect of the situation, which is that expanding employment and infrastructure is the main driver of population growth, which in turn drives the expansion of the housing market. People will move into an area if they believe there is potential for advancement there.
Our financial system is safe and secure
The banking industry in Australia is highly regulated and cautious about taking on new risks.
The Haynes Royal commission led to an increase in the stringency of our lending criteria, despite the fact that these requirements have always been high.
In addition, as of late, the proportion of loans with interest-only payments and high loan-to-value ratios has been decreasing, which indicates that a smaller number of borrowers are in jeopardy. Borrowers in Australia are required to provide a guarantee for any debts taken out while they are abroad. Certain loan providers offer non-recourse financing, which enables borrowers to hand back the keys and walk away from the deal in the event that the value of their home drops.
Do you remember the rise of the so-called NINJA (no income, no job, no asset) sub-prime and low-doc loans in the United States before to the Great Financial Crisis?
A loan that is provided to a borrower with little or no attempt made by the lender to check the applicant's ability to repay the loan is referred to as a NINJA loan in the slang sense. The phrase literally means "no income, no work, and no assets." When applying for a NINJA loan, applicants are not required to produce evidence of a steady stream of income or sufficient collateral, contrary to the requirements that are typically imposed by traditional lenders.
Before the global financial crisis of 2008, NINJA loans were more often used. In the wake of the financial crisis, the United States government came out with new laws with the intention of improving standard lending standards across the credit market. One of these new policies was to make the requirements for issuing loans more stringent. At this point in time, NINJA loans are extremely uncommon, if not completely extinct.
Australia has a long-term undersupply of the right type of property
In general, the supply of new residences has not kept up with the demand, and the primary reason for this is that there has been a rise in the amount of net immigration. There is no question that there is a glut of high-rise flats. However, these homes are of the incorrect type and are frequently constructed in inappropriate areas; they are not what the majority of families in Australia desire.
At the same time, local governments are making it challenging for developers to construct the kinds of homes that many people in Australia are looking for, such as townhouses and flats with ample space for families in our middle-ring communities.
Even though construction in middle-ring suburbs of capital cities has picked up in recent years, particularly for high-rise apartment buildings, the number of homes that are suitable for families and have a medium population density needs to be expanded.
The burden of debt is not an actual concern
The majority of the growth in household debt in Australia has been taken on by older and more financially secure Australians, who are in a better position to make their monthly payments on their debt. And a significant portion of this debt is considered "good debt" since it was borrowed against assets that are growing in value, specifically residential real estate.
The culture of Australia places a strong emphasis on property ownership
In other countries, many people have the mindset that they will spend the rest of their lives as renters.
Rental accommodation is in the hands of private investors
Private investors control the properties that are used for renting out space.
In most other countries, governments are in charge of the public housing system; but, in Australia, the vast majority of rental property is owned by private investors.
To be more explicit, the majority of buyers in Australia's residential investment market are persons who, after purchasing their primary residence, have gone on to purchase a property for investment purposes. Small-scale investors like them are responsible for the ownership of 83% of all investment properties.
According to research that was done in the past, most people who invest in real estate are married, wealthy males who have high incomes and work full-time jobs.
A person with a high salary or a family partnership that owns one or two residences as a source of supplemental income is an example of a typical investor in rental housing.
After the age of 65, there is a significant drop in the likelihood of becoming a residential investor, despite the fact that the likelihood of becoming a residential investor tends to rise with age and homeowner status.
The government wants us to own property
Because of the strong emphasis placed on homeownership in our society, the government offers first-time homebuyers a variety of financial advantages and provides investors in real estate with tax discounts.
This is how they've managed to pull it off:
For Those Purchasing Their First Home:
In the event that you are a first-time buyer purchasing a home for $600,000 or less, the stamp duty requirement has been decreased, reduced, or completely eliminated.
We have reduced the amount of stamp duty you will have to pay on a home that costs between $600,000 and $750,000. When it reaches $600,000, it remains unchanged, but after that, it begins to rise gradually until it reaches $750,000.
A modification was made to the stamp duty concession for purchases made off plan.
If you buy a property in Victoria off the plan, you will only be required to pay stamp duty on the land that it is situated on.
Before July 2017, this was a requirement for both investors and persons who intended to make the completed building their permanent home. It was referred to as the OTP concession during the auction.
You are only eligible for the concession if you are purchasing the property to use as your primary residence or if you are a first-time home buyer and qualify for reduced stamp duty rates. Currently, we refer to it as the PPR OTP concession. The acronym PPR refers to a person's primary place of residence.
Exemption from mandatory residency requirements for active-duty members of the armed forces -
If they are stationed in another state or country, members of the Australian Defense Forces may find it difficult to qualify for the First Home Owners Grant because of the residency requirements.
Participation in the HomesVic shared equity plan
HomesVic is a brand new shared equity program in Victoria. First-time buyers who are qualified for a bank loan but require assistance with the down payment can get assistance through this program.
As we move forward, the government intends to make new laws regarding under-quoting in the real estate industry and provide opportunities for first-time home buyers in city and urban renewal precincts. In addition, the government will look to provide first-time home buyers with opportunities in the city.
Negative gearing is the primary advantage that is being supported by government legislation for the purpose of providing tax breaks to property investors.
A frequent situation that may be described using the term "negative gearing" is one in which the costs connected with an asset (including the cost of interest on the asset's debt) are more than the revenue that is generated by the asset. The concept of negative gearing is not limited to the realm of real estate investments.
Negatively geared individuals have the ability to offset their losses against other types of income, including their salaries and earnings. This is in accordance with the more comprehensive functioning of Australia's income tax system.
The foundation of the tax system in Australia is based on the idea that individuals are liable for taxation on their income, less any expenses (referred to as deductions) incurred in the process of obtaining that income. This is analogous to the manner in which business profits (that is, income-less expenses) are taxed; more specifically, taxes are imposed not on a company's gross revenue but rather on its net profit.
It is acknowledged that different persons place various values on the production of income through the use of deductions for costs incurred in that production.
It is common practice to overestimate the significance of tax breaks like negative gearing and exemptions from the capital gains tax, despite the fact that some people are of the opinion that our real estate markets are being supported by opportunistic investors who are taking advantage of tax breaks like these.
Who has investments that have a negative gearing ratio?
In 2012-13:
- More than 1.9 million persons relied on income from rentals;
- Approximately 1.3 million of these properties reported a loss in net rental income;
- A taxable income of less than $80,000 per year was reported by over 70 percent of respondents who owned properties that were negatively geared.
Assets like shares can also be negatively geared. In 2012-13, about 270,000 people deducted over $1.2 billion for expenses incurred in earning dividend income.
Negative gearing can also apply to assets such as shares of stock. During the 2012–2013 tax year, over 270,000 individuals deducted a total of over $1.2 billion in costs associated with earning dividend income.
Every kind of business in Australia is eligible for the tax break known as negative gearing, which has been available for a long time. As a result of today's historically low-interest rates, this is not nearly as compelling an incentive as it was in the past.