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First Home Buyers Rush to the Regions

Up to almost 40 per cent of first home buyers taking advantage of record levels of government assistance during the past year have purchased homes in regional areas, new data has revealed.

The latest figures from the National Housing Finance and Investment Corporation reflect the pandemic-induced surge of interstate migration to the regions.

Of the applications for support under the First Home Loan Deposit Scheme (FHLDS) and New Home Guarantee (NHG), 37 per cent and 25 per cent respectively were for the purchase of homes in regional areas.

“The interstate migration to the regions is particularly noteworthy and reflects a trend we have seen since Covid,” NHFIC chief executive Nathan Dal Bon said.

“This is particularly pronounced in Queensland, which has been the greatest benefactor of interstate migration.”

According to the new data, demand relative to population share for the federal government’s deposit schemes was strongest in Queensland, which accounted for 26 per cent of FHLDS guarantees issued and 27 per cent of NHG.

Overall, 22,879 home purchases across Australia have been supported by the FHLDS and NHG, helping almost 33,000 people acquire their first home since January, 2020.

The top two states supported under the schemes were NSW (11,000 residents) and Queensland (9000 residents).

One in 10 of all first-time homeowners in Australia in 2020-21 tapped into the initiatives, with 58 per cent of all buyers aged under 30 and the schemes enabling them to bring their home ownership aspirations forward by an average of at least four years.

First Home Buyers

▲ Almost 23,000 first home purchases across Australia have been supported by the FHLDS and NHG since January 2020.

The latest data also indicates buyers over the past year have been willing to move further away from their existing residence to buy their first home. On average, buyers moved 8.4km away from their previous residence under the FHLDS and 13km for the NHG.

By postcode, demand for the FHLDS was strongest in Melbourne’s north-west (particularly Craigieburn, Mickleham and Donnybrook), with 109 guarantees issued. For the NHG, Sydney’s north-west (particularly Box Hill, Marsden Park and Riverstone) recorded the largest volume of guarantees (158).

According to the Australian Bureau of Statistics, the number of new home loans fell by 4.3 per cent in August, the largest drop since the Covid lockdowns of 2020.

Its month-on-month figures show new loans to owner-occupier first home buyers dropped 3 per cent—its seventh consecutive fall. Year-on-year loan commitments have slid 2.1 per cent since August 2020, the first through-the-year decline in two years.

“Similar to the value of owner-occupier commitments, states and territories with greater lockdown restrictions had the largest falls in the number of first home buyer loan commitments,” ABS head of finance and wealth Katherine Keenan said.

“New South Wales fell 11.5 per cent, Victoria fell 3.8 per cent and the Australian Capital Territory fell 12.7 per cent. The only rises were in Queensland (1.3 per cent) and Western Australia (3.7 per cent).”



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Market Place

Housing stock gains $1 trillion in value even as businesses shed staff

Housing stock

Australia’s residential housing stock has gained $1 trillion in value in just five months, even as the number of people in work falls back to pre-coronavirus levels with lockdowns in NSW and Victoria dragging down the national jobs market.

Record-low interest rates, reduced spending opportunities for cashed-up Australians and government grants to first home buyers have contributed to the fastest increase in property values on record.

CoreLogic data shows just how quickly the property market has appreciated over recent years.

It estimates the total value of residential property reached $9 trillion in September. It had climbed to $8 trillion in April.

Despite the biggest economic downturn since the 1930s due to the pandemic, the value of Australian property has climbed by more than $2 trillion in about 14 months.

“This puts housing values around 28.2 per cent higher than the estimated value of superannuation, the ASX and commercial real estate combined,” CoreLogic head of research Eliza Owen said.

Data released on Friday by the federal government shows its first home loan deposit scheme is bringing more people into the market.

In its first 18 months of operation, the scheme has helped almost 6000 essential workers – of which 35 per cent were nurses – into their first home. Almost 60 per cent of those using the scheme were aged under 30, bringing forward their purchase by an average of 4 years.

The Australian Prudential Regulation Authority this week announced a tightening of bank lending standards due to growing concerns about the state of the financial system related to the surge in house prices.

Banks must test whether new customers could manage their repayments at an interest rate 3 percentage points higher than the actual rate on the loan. Until now, banks have added 2.5 percentage points – known as a “serviceability buffer” – onto the rate of the loan when assessing a customer.

APRA said it believed its actions would reduce new customers’ borrowing capacity by about 5 per cent.

Treasurer Josh Frydenberg said APRA’s move was well-targeted, arguing it was likely to affect investors more than other borrowers.

“What has been pleasing in this cycle compared to previous cycles is that more first homeowners, more owner-occupiers are coming into the market. And this move will affect investors more than it will affect first home buyers,” he told the Seven Network.

As NSW, Victoria and the ACT approach key dates for their re-opening out of COVID-19 lockdowns, payroll figures from the Australian Bureau of Statistics released on Thursday showed the total number of people on business payrolls has fallen below its pre-virus levels, with women and young workers again suffering the most from the pandemic restrictions.

The number of people on business payrolls fell by 0.7 per cent in the fortnight to September 11, after a 1.5 per cent drop in the fortnight before that.

Victoria (down 1.8 per cent) and the ACT (down 2.3 per cent) took the biggest hits while NSW slipped another 0.3 per cent.

Since going into lockdown, there has been a 9.2 per cent drop in the number of people on NSW business payrolls. There’s been a 10.2 per cent drop in NSW women on the state’s payrolls while people aged between 15 and 19 have suffered a 28 per cent fall.

It’s s similar story in Victoria with its lockdown, which started several weeks after NSW. Total jobs on payrolls are down by 7.2 per cent, with women (minus 8 per cent) doing worse than men (minus 6 per cent).

The worst-hit area has been the ACT where jobs have tumbled by 12.2 per cent.

Westpac senior economist Justin Smirk said small and medium-sized businesses were taking a bigger hit to jobs than previous lockdowns.

“There clearly is a lot of pressure on small businesses in NSW and Victoria but overall the recovery has a strong base to build on given the strength of larger firms,” he said.


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Market Place

Stamp duty crimps property listings, pushing up prices

property listings

The increasing impost of stamp duty is restricting the number of properties that come onto the market, contributing to record-high prices as buyers compete for tight supply.

As prices rise, more properties are pushed into higher-bracket stamp duty bands, exacerbating the trend.

If stamp duty was replaced by an annual land tax, one of the barriers for those looking to downsize later in life would be removed, boosting supply, says SQM Research in a report: Stamp duty: the relationship to Australian housing affordability and supply.

The report shows how the rising cost of stamp duty has fostered reduced property listings for more than a decade.

Louis Christopher, managing director of SQM Research, says there has been an ongoing decline in the number of listings, despite steady increases in the total numbers of dwellings being built across Australia.

In 2008, up to 4.5 per cent of all residential properties were available for sale; today the percentage is less than 2.5 per cent, says the report, which was commissioned by the Real Estate Institute of Australia (REIA).

‘The long-term decline in listings fundamentally represents a shortage of real estate, which is a contributing factor to the surge in prices.’

Louis Christopher, managing director of SQM Research

“The long-term decline in listings fundamentally represents a shortage of real estate, which is a contributing factor to the surge in prices,” Christopher says.

Adrian Kelly, president of REIA, says stamp duty remains a prohibitive tax, adding tens of thousands of dollars to the purchase price of a home.

“Stamp duties as a percentage of average national earnings have jumped over the past decade to 34.3 per cent, from 25.1 percent in 2012 – up almost one-third”, Kelly says.

Stamp duty of $40,207 is paid on a $1 million property purchase in New South Wales, and $55,000 on a purchase with a “dutiable value” of $1 million in Victoria.

CoreLogic data for September showed Sydney house prices up 25.8 per cent since the year began with the median value now at $1.3 million. In September alone they increased by $18,000.

Melbourne prices have climbed 16.2 per cent since January 1 with the median value now at $962,250 after adding another $7750 last month.

A $2 million property in NSW attracts stamp duty of $94,567 and $110,000 in Victoria. States and territories have various stamp duty concessions for first home buyers.

In some cities, the news is not so bad. In Perth and Canberra, where stamp duty as a proportion of average wages has reduced or not risen much, there has not been as marked a deterioration in the availability of properties listed for sale.

Stamp duty creates economic distortions, according to former treasury secretary Ken Henry in a review of the tax system a decade ago. His report recommended replacing the impost with an annual land tax.

The NSW government has floated the idea of introducing a land tax. The proposal would see property purchasers given a choice of either paying a lump sum stamp duty, or paying a smaller, ongoing annual property tax.

Stamp duty on property purchases is being phased out in the Australian Capital Territory.

A report from the National Housing Finance and Investment Corp., released in July, favoured replacing stamp duty with land tax.

It said retirees and low-income earners could be paid a rebate on any land tax liability.

The report said a move to annual land tax would “likely lift dwelling prices in the short-term, as the removal of transfer duty is capitalised into prices.”

“However, if lenders fully capitalise the cost of the replacement land tax into loan serviceability criteria, the price impact from removing duty [over the short-term] may be negligible.”


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Commercial Property

Fed up home buyers take plunge into commercial property

Home Buyers

A young woman in her 20s recently snapped up her first property – it was a ground floor shop leased to a jewellery business in South Melbourne.

The buyer, who declined to be identified, paid $900,000 and will earn income equivalent to a 5 per cent yield for her efforts.

Another first-time commercial buyer, Mark Murray, was priced out of the residential market for the type of property he was looking for and instead opted for a two-storey shop in High Street Northcote, in Melbourne’s inner north.

“This is my first property. I want to lease out some of the spaces,” he said.

Both buyers are part of a growing cohort looking at entry-level commercial properties as an alternative to the well trodden path of homeownership.

Sky high residential values – Melbourne’s house prices were up 15 per cent year-on-year in September – and changes to Victoria’s residential rental laws are pushing some would-be owners to look at alternatives.

Buyers are finding that the returns on residential real estate are so poor – with yields in the range of 1 or 2 per cent – that they prefer to buy something that will give them 3 to 5 per cent, which is commercial property.

Barry Novy from Gross Waddell ICR

The state’s new tenancy laws, introduced in March, have put a fresh onus on residential landlords: banning rental bidding, introducing minimum rental standards, changing eviction rules, and allowing modification of homes by renters – all of which has sharpened the difference with commercial property, real estate agents say.

Mr Murray said he planned to live in the upstairs section of his High Street property and turn the downstairs into artists’ workspaces and a recording studio. The shopfront, next to Sweet Life Tattoo, sold through Fitzroys’ Ervin Niyaz.

Mr Murray said it was a privilege to be able to buy something and share it with the creative community. “I’ll definitely earn an income but probably not as high rent as other places.”

The overheated housing market and superior rental returns are driving people towards commercial real estate, Stonebridge Property Group’s Dylan Kilner said.

The Dorcas Street building that sold in South Melbourne has a three-year lease to Unique Diamonds with fixed 3 per cent annual increases. Its outgoing expenses are also paid by the business tenant.

By contrast, residential leases are usually limited to one-year and have no set increases in rent with landlords required to pay outgoing expenses like extra water charges, taxes and maintenance costs.

“The buyer was a first-time investor who opted for an entry level commercial investment rather than a residential property,” Mr Kilner said.

Gross Waddell ICR’s Barry Novy said buyers should do their homework before taking the plunge into commercial property because of differences between the property classes.

“Buyers are finding that the returns on residential real estate are so poor – with yields in the range of 1 or 2 per cent – that they prefer to buy something that will give them 3 to 5 per cent, which is commercial property,” he said.

However, commercial property has a greater risk of long periods of vacancy, depending on market conditions. “You’ve got to be able to cover that,” he said.

Leasing contracts in the sector are also more complicated to negotiate and administer.

“There is also a misconception that if you buy commercial property you have less maintenance. That may or may not be true.”


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