By John McGrath
Last week I talked about the rising issue of affordability, which is particularly acute in Sydney but also a concern for Melbourne as both cities are leading the way in residential price growth.
This boom is now almost five years old, which is a very long run for strong price growth and we are yet to see signs of a slowdown, mainly due to low interest rates, demand from investors and a lack of stock driving prices further north.
There has been much discussion around what Federal and state governments in NSW and Victoria should do to address the issue. Plenty of ideas have been put forward but the first government to actually do something is the Victorian government, with a series of measures recently announced to make home ownership easier for young people. Most of these measures are still subject to approval by parliament, but here’s a rundown of what they’ve proposed.
In addition to the above measures, the Victorian government will also remove incentives for investors in a bid to slow demand in that particular sector. First home buyers typically end up bidding against investors for lower priced stock, so this should reduce competition at auction for young buyers.
Melbourne is a fantastic prospect for property investors with plenty of upside over the long term. Despite large-scale price growth over the past five years, Melbourne continues to offer much better value to investors than Sydney. For example, the median apartment price in Melbourne is $480,000 with an average 4% rental yield while in Sydney it is $685,000 and 3.7%, according to CoreLogic.
Investors need to move quickly if they want to beat the deadline for changes such as the end of the off-the-plan stamp duty concession (this will remain for owner occupiers), which will see duty on a $800,000 investment apartment go from a few thousand now to more than $40,000 after July 1.
For first home buyers in Victoria, it’s time to start your research. Pick a location and the type of property you want and attend some inspections to gain market knowledge. Get yourself ready to buy after July 1.
Most importantly, don’t overextend yourself just because your stamp duty will be less. You need to be able to afford your repayments over the long term when interest rates are back at their long-term averages of 7-7.5%, so do your calculations based on this, not on today’s record low rates!
Affordability measures are expected to be announced in NSW soon, with the NSW government recently setting up a cross-government working group to brainstorm ideas for review by former Reserve Bank Governor, Glenn Stevens, before a formal plan is announced to the public.
On May 9, the Federal Government is expected to include an ‘affordability package’ in the Budget to address the affordability problem on a national scale. Let’s hope they get it right.
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