Land tax plans shelved inflation expectations fading
Inflation has peaked earlier than expected, With inflation pressures apparently easing across many parts of the global economy. Consequently, Australia’s housing downturn could prove to be relatively short-lived, as solid demand for housing driven by smaller household sizes and external migration is expected, according to Pete Wargent, co-founder of Australia’s first national marketplace for buyer’s agents, BuyersBuyers.
Mr Wargent said, “the downturn in housing market sentiment has been largely driven by one factor alone: inflation and the related fear of a sharp increase in mortgage rates. For as long as consumers fear rising mortgage rates, activity in the housing market will largely be reduced, with both volume of buyers lower, and the duration of transaction longer on pause.”
“The good news for borrowers is that the peak of the inflation hysteria now appears to have passed. Market-based measures of inflation expectations in the U.S. suggest that the peak is already in, with 5-year breakevens dropping all the way back down towards 2.6 per cent, and 10-year expectations now below 2½ per cent. These are the lowest figures since September last year.”
“Australia is some way behind other parts of the world, and with rising prices for electricity and rents still to flow through to the official figures inflation isn’t likely to peak here until the end of 20221. But the important thing for consumers is gaining a level of comfort that inflation will fall away, and therefore not being fearful of rising interest rates. Australia’s biggest bank also sees RBA cutting interest rates in 2023. In both historical and absolute terms, of course, interest rates are still relatively low” Mr Wargent said.
“Analysts will point out that any increase in mortgage rates reduces borrowing capacity, which is obviously true. But most borrowers don’t use their full borrowing capacity, and the most crucial factor in ending the downturn is simply a change in sentiment. As a matter of fact, lenders actually are now reducing interest rates for new borrowers”
Bond yields down
BuyersBuyers CEO Doron Peleg said that surging futures markets had priced in too much in the way of interest rate hikes, and the rising rates tide is now reversing.
Mr. Peleg said, “from only two weeks ago, Federal Reserve futures curves have calmed down significantly. In the U.S. markets are already looking for several interest rate cuts in 2023. Meanwhile, Australia’s 3-year bond yield, which is a key funding benchmark, has already declined from 3.8 per cent to 2.9 per cent in only the past fortnight.”
The shelving of new land tax plans is a move in the right direction for Queensland’s rental market, but there’s more work to be done, according to Pete Wargent, co-founder of Australia’s first national network of buyer’s agents, BuyersBuyers.
Mr Wargent said, “one positive that’s come out of the disruption over recent weeks and the round table discussions is that there’s now a genuine focus on solving some of the rental market challenges that won’t go away easily any time soon.”
“We always felt that taxing interstate investors was going to be a case of overreach, but the debate has stirred some worthwhile suggestions in terms of freeing up rental supply, particular in respect of affordable rental options.”
“Annual net migration from other states into Queensland has run to record high levels this year, and Queensland has a unique opportunity over the next decade to become a powerhouse location in the lead-up to the Brisbane Olympics showcase in 2032”.
In that context, we should be welcoming interstate investment in both commercial and residential property supply” Mr Wargent said.
Migration soars to record
BuyersBuyers CEO Doron Peleg said there will be a pressing need for landlords going forward.
Mr Peleg said, “net interstate migration into Queensland hit a record high of 54,000 over the year to March, so that’s over 1,000 reasons per week why there will still be very strong demand for rental properties.”
Figure 1 – Net interstate migration
“For the time being Queensland is leading the nation in terms of population growth, and with the international borders now open the pressures will intensify for some time.”
“The proposed land tax changes put our investor enquiries on a total pause, and some investors have already sold rentals, or at least had made plans to sell.”
“The reversal in the stance of the Queensland government should help the rental market to stay far more in the balance going forward,” Mr Peleg said.
Bright outlook for QLD
BuyersBuyers co-founder Pete Wargent said the outlook for Queensland is bright, as the state benefits from the shift towards working from home and flexible working arrangements.
Mr Wargent said, “in the knowledge and information era there are many more people who could choose to live anywhere within reason and choose to make south-east Queensland their home.”
“I include myself in that lucky cohort. As a former resident of the big city, I am now able to work in one of the world’s great lifestyle regions.”
“Hopefully there will be no further plans to discourage investment in the state. It would be wonderful to think that a decade from now Australia is thought of as having three major cities, Sydney, Melbourne, and Brisbane, and three powerhouse states from an economic performance standpoint” Mr Wargent said.
