The Market Needs Balance

Whatever you may think about the First Home Owners Grant (FHOG), there is no escaping that it was successful in igniting the lower end of the market, giving the building industry and the property market a kick start. However, a balance is now required. John Percudani gives his opinion.

The industry breathed a collective sigh of relief when the extension of the FHOG was announced at the Federal Budget, but it isn’t the end of all our woes. It did, however, prevent a mass exodus of first home buyers, which could have been disastrous considering they are the only ones keeping the market afloat. But the fact is the grant is going to come to an end in coming months, and then what?

I am no economist but from my observations it seems as if unemployment is going to continue to rise and interest rates are likely to rise in the short term. From my experience, these two factors impact negatively on the market and it is likely they may hit the cycle at the same time as the final deadline for the FHOG. The grant has also brought forward future housing demand and I think when it ceases, volumes will fall.

All agencies in Australia need to be aware that volume and flow are going to be affected. Businesses need to be ahead of the curve so they can be prepared, not just to ride out a difficult time, but to identify and act on the opportunities which exist in this climate.

The Government missed an opportunity at the Federal Budget. The extension of the FHOG was necessary, however, it doesn’t create long term stability in the market place. It has created an overheated situation in one single segment. In WA the first home buyer market jumped from about 25 percent to 40 percent in just months, meanwhile the other end of the market remained slow. This distortion is not sustainable, the market needs balance.

So how can we achieve balance? There needs to be a look to mid to long term health of the property market. I was disappointed the Government didn’t broaden the stimulus by offering the next level of buyers and investors incentives to make a move into the market place. The overheated first home buyer section is not capable of sustaining the market alone; a healthy market is a balanced market. And from a banking perspective, second and third tier homebuyers and investors are generally less risky borrowers than those seeking the grant.

Before the budget announcement our results at Realmark indicated that sales in the above $500,000 market were starting to slowly increase. This is a natural part of the property cycle as the increased number of sales at the lower end start to stimulate the market above them as people sell and upgrade. In my mind boosting this ripple effect could be the key to bringing stability back to the market place. If the Government was to create an assistance package that fed this ripple they would broaden buyer demand outside of the first home buyer market. We should be working to lay the foundations for balance and stability in the market place and to do that we need to engage those buyers further up the chain.

What we need is a long term plan. Quick economic fixes are not the answer. What also needs to be considered is the serious housing shortage we are facing in this country. No matter what state the wider economy is in, there is ever increasing demand for housing that simply isn’t being met. Affordability (especially in Perth) has crept back so perhaps now is actually a time of opportunity to face this issue and a broad based Government stimulus that brings investors back on board to build and acquire rental homes might be part of the answer.

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John Percudani

John Percudani is the Managing Director of Realmark.