Rate Cut and Budget Boost Property Markets

Posted on 4/05/2016  
Rate Cut and Budget Boost Property Markets

By Terry Ryder

Tuesday 3 May 2016 was a momentous day for the Australian real estate industry. The Reserve Bank cut the official cash rate for the first time in 12 months, there was an accumulation of positive data from the market and Federal Treasurer Scott Morrison delivered a Budget which confirmed no change to negative gearing tax benefits.

The RBA decision to cut the cash rate to a new record low of 1.75% was following in quick succession by comparable variable rate cuts by National Australia Bank and Westpac.

Morrison’s first Federal Budget reiterated the Government’s policy of retaining the current tax policy regarding negative gearing and the capital gains tax concession.

“We will not remove or limit negative gearing,” Morrison said in his Budget speech. “Those earning less than $80,000 make up two-thirds of those who use negative gearing. They are teachers, nurses, police officers, office workers and tradesmen.

“We do not consider that taxing them more on their investments is a plan for jobs and growth.”

The Federal Opposition has announced that, if elected, it would disallow most negative gearing tax claims and charge investors more capital gains tax. When an ALP Government banned negative gearing in 1985, it caused residential rents to rise and forced the Government to reinstate it within two years.

The key Budget measure which might impact on real estate investors and developers is the decision to cut the company tax rate for small businesses to 27.5% - and to expand the definition of “small business” from a turnover of under $2 million to under $10 million.

Indirectly, Budget spending on infrastructure will also impact on real estate markets, including substantial funding for land acquisition and pre-construction works for the inland rail link from Melbourne to Brisbane. Locations along the proposed route are likely to experience boosts to their real estate markets.

Meanwhile recently published data on building approvals and price growth point to a fundamentally solid real estate market.

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