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  • Writer's pictureSkyward Financial

Property Finance Update - May 2024

Is it a supply issue?

There is constant talk about how there is a lack of supply or housing in Australia, particularly in capital cities, and especially because there is a lot of demand.

Supply is not keeping up with demand, even though Australia when compared to the UK, Canada or NZ has actually had a strong pace of developments and buildings.

The wider issue in making enough supply is in the building industry. They are caught in a tough spot with increase in costs to build in materials and wages, slower approvals, and higher interest rates.

This is evidenced in the huge spike in building businesses being shut down and going into administration.

Without firms to get people to build housing then supply will continue to languish.

There is no easy answer. Development planning needs to change, market dynamics need to change, and productivity needs to change.

When a lot of change is needed it usually means a period of disruption, and it is likely that the construction industry as a whole will continue to feel this.

On the demand side often immigration is pointed to as the leading driver of demand, and it clearly is a key driving factor, but it is also demand for locals as well.

The truth is Australia is a great place to live, and invest. So people from overseas and locals want to buy their slice of land.

There is no sign to demand abating even if immigration is reduced, as locals will probably fill the gap. This is a strong signal for property prices.

The Budget and inflation have been dominating the headlines recently. Here are four other stories that are important to know:

  • Variable loans surge in popularity

  • Housing scheme milestone

  • ATO warns investors

  • Building costs explained

Read more below.

Back in March 2020, at the start of the pandemic, 13.38% of new borrowers were choosing fixed-rate loans and 86.62% were choosing variable. But in March 2024, a staggering low of only 1.40% of new loans were fixed, compared to 98.60% variable, according to the Australian Bureau of Statistics.

The reason so many borrowers are going variable right now is because of a widespread belief that interest rates are at or near their peak, which means variable borrowers would benefit from any future rate cuts. Conversely, in July 2021, when interest rates were at record-low levels, 46.02% loans were fixed, while only 53.98% were variable.

If you’re wondering whether fixed or variable is right for you, here are the main pros and cons of each option:

Are you a first home buyer or single parent who wants help getting a property? If so, you’ll be interested to learn that the federal government’s Home Guarantee Scheme (HGS) has now supported more than 150,000 buyers since its inception in January 2020.

Eligibility is limited. There are property price caps, which vary from state to state. Income caps also apply – $125,000 for individuals and a combined $200,000 for joint applicants.

The HGS consists of three programs:

  • First Home Guarantee – eligible first home buyers can purchase a property with just a 5% deposit, without having to pay lender's mortgage insurance (LMI). There are 35,000 places available this financial year.

  • Regional First Home Buyer Guarantee – the same as above, but for regional first home buyers only, with 10,000 places this financial year.

  • Family Home Guarantee – eligible single parents and single legal guardians can purchase a property with just a 2% deposit without paying LMI. There are 5,000 places this financial year.

Of the 150,000 buyers who have used the HGS, 51% have been women and 55% have been under the age of 30, according to Housing Australia, which administers the scheme.

Contact me if you’re thinking about accessing the HGS. I'll let you know if you're able to qualify for the scheme and manage your loan application if you are.

The Australian Taxation Office (ATO) has warned property investors it will pay close attention to their reported income and deductions this tax time, with official data showing that about 90% of investors get their tax returns wrong.

ATO assistant commissioner Rob Thomson said general repairs and maintenance on your rental property can be claimed as an immediate deduction – but expenses that are capital in nature (like immediate repairs on a property you just bought or improvements some time after purchase) are not deductible as repairs or maintenance.

“We often see landlords making mistakes when it comes to repairs and maintenance deductions on rental properties, so we’re keeping a close eye on this. This year, we’re particularly focused on claims that may have been inflated to offset increases in rental income to get a greater tax benefit,” he said.

“You can claim an immediate deduction for general repairs like replacing damaged carpet or a broken window. But if you rip out an old kitchen and put in a new and improved one, this is a capital improvement and is only deductible over time as capital works.”

Since late 2019, homebuilding costs have increased by nearly 40%, according to a speech by Reserve Bank assistant governor Sarah Hunter, while general inflation (referred to as headline CPI in the graph) has been less than 20%. So why have residential construction costs grown twice as fast?

Ms Hunter said one reason is that building materials and labour have “risen sharply” since the pandemic. Another reason is that higher interest rates have made it more expensive for developers to fund their projects.

High building costs have partly contributed to “an imbalance between new supply of housing and growth in demand,” according to Ms Hunter. She said there were several ways in which these imbalances may be resolved, including a slowdown in the growth in building costs and an increase in average household size.

“But it will not be a quick fix. Demand pressure, and so upward pressure on rents and prices, will remain until new supply comes online,” she said.

Here are three things to consider if you’re thinking about building a home in 2024:

  • Begin by speaking to me, so I can calculate your borrowing capacity. This can vary significantly from lender to lender, especially as some lenders are more builder-friendly than others.

  • Do you homework when searching for a builder – ask friends for recommendations, check online reviews and ask builders for the contact details of their most recent clients.

  • Be conservative with your planning – projects often run overtime and over budget.


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