The 2017 Budget and the Sydney property market

May 16th, 2017

Our take on the Budget:

While the devil will be in the detail, there seems little on the face of this budget to cool the Sydney property market.

But dig a little deeper and there could be indirect mechanisms with potential to increase mortgage stress starting with this monster surprise 6 basis point special levy from 1 July 2017 on the major banks (likely passed on to borrowers) and increasing the Medicare levy in 2019 by 0.5%.

The cooling effects of such measures could be pronounced if wage growth fails to lift from the current flat line to the 2.5 % – 3% ScoMo forecasts.

Allowing FHB’s to save for a deposit is a silly idea that would only add heat to the market but for modelling which suggests less than 3% of them will take up the offer. And trying to prise retirees from their family homes into higher superannuation will likely prove just as unpopular.

The other changes regarding negative gearing and foreign buyers are tweaks at the margins whilst the capital gains discount – the tax break which contributes most to rising property prices – remains sacrosanct as expected.

It has actually increased to 60% for affordable housing providers where, in trying to solve a problem, ScoMo looks like he has created another one. Nothing unusual there.

Of even greater interest to us is the suggestion APRA will have increased powers over non traditional banks and to impose geographically specific restrictions. Maybe and as we’ve been saying, there will be something like a ‘Sydney only’ interest rate ala Auckland after all.

While we applaud both ideas in principle, they could truly be devilish detail for Sydney property buyers.

All these measures, especially the new special levy on the major banks, have the potential to realise the over correction concerns we raised last quarter and blow a cold wind right in the market’s face.

Great buying conditions could be ahead:

http://www.curtisassociates.com.au/…/sydney-property-marke…/

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