What's Impacting Property Prices?
by Michael Williams, Managing Director
Will property continue to increase in the light of the budget?
In terms of property increases, we cannot see anything on the horizon that will dramatically affect the supply and demand ratios that are ultimately the underlying driver of property prices.
However, there are a couple of minor budgetary changes which may have a slight impact on property prices that are worth discussing:
Superannuation Contributions
Concessional contributions for superannuation after 2012 will revert back to $50,000, rather than $25,000, as previously indicated; although this is only for balances for less than $500,000. This means clients with balances larger than $500,000, with cash flow which allows them to contribute more than $25,000, will need to find a home for this cash flow. This may be directed towards investments outside superannuation, which would include both equities and property. With these clients having larger incomes, and therefore greater tax bills, we can see the tax advantages of property being popular as an investment vehicle.
Tax rates
Tax rates will continue to decrease in line with previous budget announcements, which will have the advantage of providing more cash in the average Australian pocket. However, the tax effectiveness will reduce slightly on property as the marginal tax rates decrease.
Reduction in tax rates on interest from bank accounts
You require $16,667 of cash in a bank account earning 6% to take full advantage of the reduction in interest under the new changes. This has not made savings accounts that will direct money away from equities and property to cash an attractive an option. We cannot see this having any effect on property prices.
First Home Savers Account
When first announced, the Government expected that by now 400,000 Australians would be using the First Home Savers Account to save for their first home. Currently, only 16,000 accounts have been opened. A minor amendment has been made to allow individuals to roll the balance of the account into their mortgage once they purchase an eligible first home after a minimum qualifying period. The changes will make this a more attractive option to younger people looking to save to purchase their first home. Any clients wanting to understand how they can benefit from this type of account should contact their Financial Adviser.
For more information, or to arrange an appointment with a John Hopkins Financial Adviser, please contact our Client Liaison Officer on 1300 726 082 or click here.