Sydney, NSW, Australia

The Labor Government’s first Federal Budget will have some effect on the property market, however it is just one in a number of forces influencing the current market outlook, according to Colliers International’s National Director – Research Rory McLeod.

Mr McLeod addressed 250 business leaders this morning at the Colliers International Federal Budget Analysis breakfast held at the Westin Hotel, following a keynote budget analysis presentation by Macquarie Bank’s Chief Economist Richard Gibbs. 

Mr Gibbs and McLeod were then joined in a panel discussion with AMP Capital Investors’ Director of Property & Chief Investment Officer Andrew Bird, and PricewaterhouseCooper’s Middle Management Leader Grant Stewart.

Mr McLeod said the Budget’s contents held opportunities for direct impact on the property market in the form of the Enhanced First Home Savers Accounts ($1.2bn), National Rental Affordability Scheme ($623m) and Housing Affordability Fund ($500m) as well as indirect impact through the three new Infrastructure Funds.

“The National Affordability Scheme seems like a good incentive to attract investors to provide more housing for low income tenants, however it will obviously be weighed up against renting at market prices to see what the true end benefit will be,” Mr McLeod said.

Mr McLeod said the enhanced First Home Savers Accounts was an excellent idea to help first home buyers bridge the deposit gap, however he warned ongoing consideration needed to be taken in not only focusing on actions to stimulate demand.

“The real issue is lowering costs imposts on the supply side.  If demand is stimulated but costs are left constant it is just going to force prices up.”

Mr McLeod said he therefore supported the Housing Affordability Fund, which includes up to $30 million to rolling out the Electronic Development Assessment project to speed up planning approval processes.

“If effective, the Housing Affordability Fund should improve processing times and reduce holding costs for developers, which should go some way to balancing out the demand-stimulating actions.”

Mr McLeod said the $40 billion put towards the three new infrastructure funds were likely to have an indirect impact on property.

“One of the aims of the infrastructure funds is to unlock infrastructure bottlenecks, and this should reduce constraints to improve productivity and make doing business easier,” said Mr McLeod.

Mr McLeod said the Budget had to be viewed alongside other market forces, in particular global and local economic conditions.

“Property markets have been hit hard by the global credit crisis, but there seems to be a disconnect between the real economy and the financial economy.” said Mr McLeod.

Mr McLeod pointed to the strong growth in the economy and employment driven by the strong growth in developing economies and a dramatic improvement in terms of trade due the commodity boom as evidence of the strength of the “real” economy.

“Demand for office space has been very strong over the past three years, leading to the lowest vacancy in the CBD for 17 years which in turn has driven high rental growth.  While demand may come back slightly, we expect it to remain strong on the back of solid economic growth,” he said.

However, Mr McLeod suggested the free ride was over for yield compression.

“I believe this is a structural shift, not a cyclical one.  As inflation came down, so too did interest rates, followed by yields.  Interest rates are now going up, inflation is going up and yields are therefore going to once again follow suit.”

About Colliers International

Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 10,092 employees span the world in 267 offices in 57 countries. On a worldwide basis, Colliers manages 672,945,918 square feet, and has revenue of $US 1,620,958,349.

Contact Information

Phoebe Miller
National Communications Manager
Tel: 02 92570276
Mob: 0402 547 484
Email: phoebe.miller@colliers.com

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