The 2008 Budget Overview for Investors

Whilst some of the details of the 2008 Federal Budget are still to be fleshed out it seems that the overall impact for investors will continue following the current trend. Growing demand for housing, short supply and increasing migration are all factors that will all put pressure on both rents and house prices.

Tax cuts may provide relief for those finding it hard to pay their mortgages after recent interest rate increases but renters, on the other hand, face higher rents in a market where the gap between supply and demand is increasing. Further upward pressure on rents may see value of the tax cuts for renters eroded.

Renters become home owners when rents increase to a level where it becomes more economically to buy rather than rent. However, home ownership affordability is the worst it has been for many years and the recent increase in interest rates hasn’t helped. With rents increasing and with the likely hood interest rates will drop towards the end of the year there is a greater chance that more renters will enter the home buying market later rather than earlier. This may stave off the demand for housing from renters for a while.

However, given the increasing levels of migration, the demand/supply equation is likely to get worsen.

For investors, the picture looks rosy. Increasing house prices and rents means that there are opportunities for those that want to expand their portfolios.

For struggling home owners, having trouble paying their mortgage, the opportunity to convert their home into a rental property for a year or two will provide a significant change in the financial equation.

For renters, the First Home Savers Accounts (FHSA) look to provide a ‘leg up’ into property. With Government co-contribution of 17% on the first $5,000 per income year and a tax rate 15% on balances up to $75,000 indexed this could help many. There are still many fine details to be revealed about it though.

The $20B spend on infrastructure is always a good sign for investors as it will present many opportunities as roads and mining infrastructure is implemented around Australia.

The National Rental Affordability Scheme may provide significant opportunities for developers as the details of the scheme unfold. As far as investors are concerned there may be new opportunities for the provision of affordable housing from the emerging modular housing market.

Still to assess are the definitions of income used to income test government financial assistance that will be revised. The Government will broaden the definition of income to include certain salary sacrificed contributions to superannuation, net financial investment and rental property losses and reportable fringe benefits. The implication of this will need to be analysed further as information becomes available.