Homeowners were pleasantly surprised by the Reserve Bank’s decision in early May to slash the official cash rate by 25 basis points, taking it to the historic low level of 1.75%. Almost every “expert” had predicted rates would remain on hold once again beforehand, but lower than expected inflation figures left the door open for the RBA to act. Whilst good news for the property market, this most recent move by the RBA provides confirmation that our economy remains in a fragile state.
Within minutes, NAB had announced it would pass on the full cut to borrowers, with Commonwealth and Westpac following soon after. ANZ was the only major lender to break ranks, announcing it would pass on just 19 points, blaming the move on rising funding costs.
The news came just hours before the Federal Budget was handed down, which left the property industry largely untouched. It was more good news for property owners and the broader population, who will be significantly affected should Labour succeed in the forthcoming election and proceed with its proposal to abolish property tax concessions.
Economists are in agreement that if Labour’s plan to slash negative gearing on existing properties and halve capital gains tax is implemented, property prices will fall, impacting the wealth of the majority of Australians. What’s not being widely talked about is the broader effect, which would bring rising rents and rising unemployment, as well as take billions of dollars out of the economy. Even those who tout falling prices as a positive to improve affordability for first home buyers are not acknowledging that a marginal reduction in the overall purchase price will not negate the need for hefty state stamp duties and a 20% deposit upfront – far greater barriers to affordability that Labour’s predictions of 2% price falls.
Amid all of this political debate, the Melbourne property market continues to deliver a healthy performance, recording a 1.1% increase in prices over April. This healthy result was achieved amid a rise in the number of properties for sale of 9%. Annual gains now sit at 10.1%, with Melbourne the only capital city to boast double digit growth.
Clearly there is potentially some uncertainty ahead, with a looming Federal election. In the meantime, Melbourne property conditions going into winter are attractive for buyers and sellers alike.