The Dot Update - March 2024
Welcome to this month’s edition of the Dot Update -
Tax Cuts Encourage Investment
Stage 3 tax cuts coupled with a drop in interest rates could be enough to entice investors back to the property market. Industry experts said the two financial measures combined would lead to better borrowing capacity.
Broking analysis suggests borrowing capacity might improve by between 4% and 5% as a result of the Stage 3 tax cuts. LJ Hooker head of research Mathew Tiller, says there has already seen an increase in investor activity over the last six or so months with much lower vacancies and higher yields.
“With more money tipped into everyone’s pockets, that could increase buyer demand from both investors and owner-occupiers. It would also help borrowing capacity for investors and the serviceability of their mortgages,” he says.
Under the Stage 3 tax cuts people on $100,000 a year receive a tax cut of $2179 a year, those on $190,000 and above will receive a cut of $4529, and those on $70,000 will receive a tax cut of $1429.
Prices Tipped to Keep Rising
Australian property prices are tipped to rise by 5% a year for the next two years according to a survey of property analysts.
The poll by Reuters, conducted in February, of 14 property analysts, shows the majority think price increases will continue to rise despite substantial increases in the past three years. ANZ senior economist Adelaide Timbrell says housing prices will still grow because people will have more borrowing capacity through the year due to tax cuts and rate cuts.
“And there’s still strong population growth and a backlog of building homes that needs to be filled.”
According to CoreLogic Australian Housing values nationwide increased by 0.6% in February, with Western Australia, Queensland and South Australia the most solid performers. Almost every capital city (Hobart was the exception) recorded a lift in values over the month according to CoreLogic Research director Tim Lawless.
“Housing values have been more than resilient in the face of high interest rates and cost of living pressures,” he says.
Construction Costs Back To Normal
After three solid years of price rises residential construction costs are returning to more normalised levels of growth.
The Cordell Construction Cost Index (CCCI), which tracks the cost to build a typical new dwelling, shows a national growth rate of just 0.8% over the final three months of 2023. CoreLogic Economist Kaytlin Ezzy says the annual growth rate for 2023 was 2.9%. This was the smallest 12-month annual increase since 2007.
"This suggests that growth in construction costs have normalised after recording a recent peak of 11.9% over the 12 months to December 2022,” Ezzy says.
CoreLogic Construction Cost Estimation Manager John Bennett says there have been increases in the price of hardware and chemical items. Price rises varied across the states, with an increased growth rate seen in New South Wales, Victoria and Western Australia and a drop in the rate of growth in South Australia and Queensland.
Ezzy says the market is unlikely to experience a drop in construction costs, but she predicts a recent lull in approvals could result in a shortfall in new projects, which would help keep growth in building costs low, due to greater capacity in the construction sector.
She says the normalisation in construction price growth will help provide some certainty for builders, insurance companies and homeowners alike.
As always, we hope you enjoyed reading the blog and should you have any questions, please feel free to email Connecting@dotfinancial.com.au or you can call us on 1300 000 DOT (368).