A lot of news, still waiting on any impact…
The Henry Review has ended up with surprising little on impact property – given the voluminous 138 recommendations; the expectation was for a far greater impact.
One of the key recommendations of the Henry Review related to the tax on savings and how the current legislation distorts people’s savings and investing behaviour. The Review focused particularly on current trends of negative gearing property taking advantage of the tax rules and how this has encouraged households to take on too much debt and risk when undertaking investments.
The review proposed a more consistent approach to taxing savings – with the specific recommendation being to apply a 40 percent discount to most interest income, net residential rental property income, capital gains and interest expenses.
The view was that our tax system actively encourages risk-taking and perhaps to an excessive degree. More problematic is that it penalises investors who are more cautious and risk averse.
With no changes at this stage being implemented, the current property trends are likely to continue unaffected by the Review, perhaps a different story for Western Australia who has seen their market driven largely by the mining sector. With the 40% tax grab on the mining industry’s profit, there may still be some ripples to be felt closer to home.
The trend for interest rates continued with the 6th increase in a row, taking the cash rate up another 25 basis points to 4.5%. As indicated in past blog posting this move starts to place interest rates back to the Reserve Banks (RBA) neutral territory with the Standard Variable loans now in the mid7%. It will be interesting to monitor if this is enough for the Governor Glenn Stevens & the RBA to pause and watch for full effect prior to any further interest rate movement.
*The above graph from the SMH commentry on the May interest rates decision.
Supporting this is the Australian Bureau of Statistics (ABS) release of Retail sales having a lower-than-expected 0.3% to a seasonally adjusted increase to $19.92 billion in March from $19.85 billion in February, With retail sales being weaker than expected this may be enough to put rates on hold for a little while.
Today The RBA will publish its quarterly Statement on Monetary Policy where there are expectations that they will upwardly revise the medium-term forecasts for both inflation and economic growth.
As we saw pre-GFC the Reserve’s focus has been very strongly focused on keeping inflation firmly in the 2 – 3% range, hopefully this cycle they do pause to monitor effects rather than continue increasing till the cracks start to show in the economy. Most of us learn from our mistakes, but time tells all things.
Confidence in property has remained strong even with a number of new listings on the market; there is still a relatively low supply of properties for sale relative to the strong demand. It has been interesting to note a number of buyers comments that they hoping for a couple more interest rate rises to knock out some of the competition, particularly in the lower price brackets.
Till we meet again, wishing you all the best in your property search!
The Team at Richardson & Wrench Seaforth/Balgowlah.
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To keep an eye on this week’s reported Seaforth real estate, Clontarf real estate, Balgowlah real estate, Balgowlah Heights real estate and North Balgowlah real estate Click Here*
*Sales are as reported by Australian Property monitors on 6/05/2010
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