Businesses and the economy were the biggest winners in this election. The weakening Aussie dollar and record-breaking low interest rates were clearly the biggest concerns for Australian’s as they took to the voting booths on September 7th.
But what does the new government mean for property investors?
The Coalition’s plan to bring Australia into a thriving economic future is great news for property investors. A flourishing economy is excellent for the real estate market, as consumer confidence will return resulting in job creation, infrastructure growth and higher spending.
Taxes
“I would be amazed if it becomes necessary [in speaking of a double dissolution of parliament] but we’re going to abolish the carbon tax, we’re going to abolish the mining tax, no ifs, no buts, we’re going to.”
- Tony Abbott
Firstly, this is good news for mining towns since the carbon tax and mining tax will be thrown out. Smaller mining markets that have been struggling may recover as jobs return to the area. While the mining boom is surely over, the tax cuts will lead to higher fiscal return making the mines more efficient, resulting in more jobs and stronger economic growth.
The scrapping of the carbon tax is likely to assist small to medium businesses, giving them a higher fiscal turnover and allowing them to compete with big businesses that dominate our economy. The scrapping of the carbon tax will flow through to the consumer level, increasing confidence for buyers and boosting the retail sector. This increase in consumer confidence has a correlating affect, which will drive up property values in a large number of markets throughout Australia.
Infrastructure
Once the budget is back in surplus, Abbott has strong plans for infrastructure spending. The coalition is focused on an infrastructure fund for the public school system and has expressed that they will have the Productivity Commission review the childcare system. With better, more affordable childcare, families will rest easy about returning to work.
Over $18 billion is to be spent on national roads, which will change how our cities operate. Soon workers will no longer be ‘grid locked’ on their way to work and can contemplate living out in the suburbs without having to sacrifice a great deal of time to get into city centres. The roads will affect property investors with a ‘buy and hold’ strategy, so it’s important to look at these plans to see possible future hotspots.
Bad news for Canberra and Darwin
Unfortunately, the coalition plans to cut 12,000 public servant jobs in order to save $5.2 billion. This is bad news for the already struggling property market in Canberra. The good news is the cut will be gradual – no one will be ‘fired’, they just won’t be replaced when they quit or retire or they will be offered redundancy packages.
Other concerns for investors will be the reduced public sector jobs in Darwin. Darwin employment levels rely on the public sector as well. In these two markets we should expect a drop in value due to their reliance on government work
Great news for Tasmania
The Tasmanian economy has been struggling for quite some time; evidenced by a lack of job creation and a stagnating export market (both nationally and internationally). Going forward, the Coalition government has plans to strengthen the economy and “generate real improvements and growth”.
An excerpt from the Coalition’s Discussion Paper: Building a Strong, Prosperous Tasmania reveal:
- Arrangements to encourage development.
- Projects that deliver the most economic return to Tasmania.
- Increasing Tasmania’s agricultural output.
- Possibility of new dams.
- Establishing and funding a new Centre for Antarctic and Ocean Research in Hobart.
- Promote further private sector investment, job creation and competitiveness in defence
- Potential mechanisms to promote further private sector investment, job creation and competitiveness in international shipping to and from Tasmania.
To view the full discussion paper, click here: https://www.liberal.org.au/our-policies
We’ll just have to watch to see if these steps are implemented and whether they’ll boost demand in the stagnant Tasmanian property market.
Interest Rates
With the economy now projected to be on the rise, interest rate increases are expected, though not in the short-term. While this is indicative of a growing economy, it can catch property investors off guard. If you’ve been in the acquisitions phase, you may find that your positively geared properties could become negatively geared in 12 to 24 months time. The best advice I can give is that you look at your current portfolio and calculate your cashflow with an interest rate at 7% so you won’t be caught off guard. Now is the time to start setting up your buffers, if you haven’t already.
Sam Saggers is CEO of Positive Real Estate and Head of the buyers agency which annually negotiates $250 million-plus in property. Sam's advice is sought-after by thousands of investors including many on BRW’s Rich 200 list. Additionally Sam is a published author and has completed over 2000 property deals in the past 15 years plus helped mentor over 2200 Australian investors to real estate success!
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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.
