As you can see from the heat maps above, it is quite clear that the development is quite spread out in the Sydney metropolitan area whereas the development is very concentrated in the Brisbane & Melbourne CBDs making these two markets more at risk of a housing correction as more stock will come onto the market in the same or adjacent suburbs.
This is why experts such as Pete Wargent suggest that the Sydney market is a lower risk when buying off-the-plan compared to the Brisbane, Gold Coast & Melbourne markets. However, you should always do your research on the developer when purchasing off-the-plan apartments.
Housing located on good sized blocks of land (normally over 300sqm), however, this varies depending on the distance to the CBD) & are relatively close to the CBD (approx 2-15km in the case of Sydney, 2-10km in the case of Melbourne & 2-7km in the case of Brisbane) with good public transport access, good quality roads, a solid local public/private school system & a university close by.
Overseas Student Population increases
Overseas student populations have exploded in our major cities of Brisbane, Melbourne & Sydney. This has created pressure on our road & rail infrastructure as students tend to have a high usage for both of these public resources.
Government Policies Favouring Property Investment
Capital Gains Tax Exemption & Discounts
There are two forms of discounts:
- A 100% exemption on the profits from resale of your family home (owner-occupier home), you can only have one of these listed to your name at any one time.
- A 50% tax discount on profits from investment properties. There is no limit to how many properties you can own & take a profit from.
These obviously give major incentives to people placing their money in a property over what would be seen as a more risky investment such as a business start-up.
Negative is the practice where an investor can purchase a property then rent it out & if the rent does not cover the cost of the mortgage repayments then they can claim the difference on their end-of-year tax return.
For example, a guy named Bob is earning $100,000 and buys an investment property for $1,000,000 and rents it out for $500 a week. His repayments on the property over a 30 year loan are $83,000 @ a 5% interest rate meaning that the total yearly rent he would be getting is $26,000 constituting a $77,000 loss which he could then claim against his tax and pay less personal income tax.
It is argued by the real estate industry that removing negative gearing will increase the cost of renting but this is yet to be seen and only speculation to what would occur can be discussed at this stage.
First Home Buyer Grants
These upfront grants are given by the government in certain states under certain conditions.
These policies have been criticised for pushing up the cost of housing, particularly when the Rudd government introduced these measures in 2009 right after the global financial crisis as these grants were leveraged to the tune of 80-90%.
This meant that a young couple with a deposit of $50,000 now had an extra $14,000 to leverage against so therefore instead of borrowing $250,000 they would instead borrow $320,000 meaning that extra $14,000 actually caused prices to go up by $70,000 over the short term.
Historically Low-Interest Rates
The current interest rates which are set by the RBA (Reserve Bank of Australia) are at a historical low of 1.5%. This is the lowest they have ever been. Even tho they are at the bottom, they could still fall a further 1.5% giving the RBA some room to move if things got really bad however the problem lies in Sydney’s economy booming with growth around 4% for 2016 but in contrast, Perth’s economy has been in recession and has contracted in 2016.
Here is a chart of the historical interest rates in Australia:
This graph above by LF Economics shows just how much Sydney house prices have grown in real terms. This growth far exceeds logic when you consider how much wages have grown over the same period making the growth completely unsustainable.