Property Point 15th May

So, what’s going on with the property market?

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The thing about the property market is that it doesn’t stand alone in its own little world untouched by the drama going on around it.  

And there is a fair bit of drama at the moment. Let’s get all the dramas to form a conga line and point them out one at a time.

First there’s inflation, an annoying factor that adds to the cost of living and affects people’s ability to buy real estate.

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Right behind inflation, and I mean very close, is its brother in arms/partner in crime/long-time bedfellow, interest rates. Interest rates have been particularly pesky lately as the Reserve Bank pushes them up in an attempt to bring inflation down. The idea is to make housing less affordable so you can make housing more affordable.

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Then there’s a war in the Middle East. War is very good for  business if you are a weapons producer and part of the military-industrial complex but it’s not very good for everyone else. It certainly isn’t good for confidence and housing markets are pretty big on the old confidence factor. So, not good.

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This particular war has the additional benefit of taking place in the Persian Gulf, where a fair portion of the world’s oil is transported from Middle East oil producers to the rest of the world. The war has created a traffic jam in the Strait of Hormuz, which is restricting the supply of oil, meaning that in a world of demand and supply the price of fuel at the petrol bowser has gone up significantly. Which means our old friends inflation and interest rates give us another wave from the conga line and remind us of another impact on the property market.

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The conga line of dramas was joined this week by the Federal Budget and its changes to negative gearing, up until now a key driver in property investment and the supply of rental properties.  

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Nothing changes for people who had negatively geared properties up until Budget night. My Pommy colleague Andy Collins, the Sales Manager at Gardian real estate, pointed out after the Budget that there was no way the changes would include investors’ existing properties because too many politicians own investment properties and the  pollies  wouldn’t do anything to hurt themselves. It’s up to you whether you think Andy is a sniping little Pommy whinger or an astute judge of human nature. Or can he be both?

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What Andy correctly pointed out is that from now on investors will be looking for properties that provide such good rental returns that they are positively geared, removing the need for negative gearing.

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That’s where Mackay’s strong rental returns come into it. Investors from southern markets have been active in the Mackay market because of those rental returns. When they can get returns like $750 a week on properties they have bought for $650,000, those southern investors realise Mackay offers better opportunities than the high-priced, low-rent options in their own cities.  

Andy was suggesting that it is possible that the budget changes will spur even more investment activity in Mackay because the removal of negative gearing makes investments in other markets unviable.

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I will delve further into the status of the Mackay market in upcoming columns but there are a few initial points to make.

There is no doubt that, like every other market, the conga line of dramas has had an impact and given buyers pause for thought. But we are still seeing strong buyer activity and properties selling.

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As always, the buoyancy of our coal market and the jobs and business it provides will continue to be a driver of our economy and a key factor in the property market.

Will the budget changes create an additional spur to our market and bring more investors in or is that conga line going to have a bigger impact? Stay tuned over the coming months.

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