EARLY ACCESS TO SUPER BOOSTS THE MARKET
The majority of industry professionals are bullish about the prospects of the property market, especially given the market is being boosted by all buying groups, not just investors as seen in 2015, with first home buyers making up a large percentage of industry activity. This indicates a solid foundation for market growth, and thus it is important to look at some of the factors boosting the market – such as the Government’s policy to allow first home buyers access to their super funds in 2020.
First home buyers in the market
From the middle of 2020 onwards, sales of homes to first home buyers have surged to levels not seen in more than 12 years. Data from the Australian Bureau of Statistics shows that first home buyer activity in December 2020 increased by 35.9% compared to the same period in 2019. Increasing first home buyer activity has corresponded with government initiatives such as the HomeBuilder Grant and with interest rates dropping to historical lows.
However, an overlooked factor is that even with access to government grants, first home buyers still need to have a sufficient deposit in order to buy a property. Many were able to save more money than usual in 2020 as the pandemic meant that many stayed at home and had fewer opportunities to go out and socialise or to travel, which in turn meant that they saved more. However, one avenue that some enterprising first home buyers used to bolster their savings was through early access to their superannuation savings.
The Government’s policy
In 2020, the Federal Government allowed people to withdraw up to $20,000 from their superannuation funds. The idea was to help households through the worst of the pandemic. Around 3.5 million people took advantage of the offer and withdrew a cumulative total of $36 billion. Some of these 3.5 million used the money to bolster their household budgets.
However, it is interesting to look at statistics from analytics firm AlphaBeta which noted that 64% of super was spent within two weeks on non-essentials such as clothing, furniture, takeaways, alcohol and gambling. That still leaves a small group of people who put the super they withdrew into other asset classes, such as shares or property. Some of this group used their super to bolster their deposit for a first home loan. According to Digital Finance Analytics, just on 22 per cent of first home buyers who purchased a property within the last six months used their super withdrawals to make up at least part of the deposit. Half of those first home buyers used the entire $20,000 to bolster their deposit.
First home buyer activity was already increasing before Covid-19 hit, but the subsequent government initiatives, cheap access to home loans and the ability to access super have seen the trend accelerate. There is no doubt that access to super is another factor in the acceleration of the trend and one that enabled some first home buyers to enter the market much earlier. This access has had a significant impact on the market, helping to drive new home sales, fuel price increases and increase competition for the low amount of stock that is on the market nationwide.
Looking to the history books
The last time first home buyers were so active was in 2008 and 2009 following the introduction of first home buyer grants by the Rudd Government in response to the global financial crisis. On that occasion, first home buyer activity surged to reach an all-time high within five months of the introduction of the grant. However, within 18 months, the number of first home buyers was lower than prior to the introduction of the grants.
This time around, first home buyer activity hasn’t quite reached the levels of 2009, but it may do so in the next few months. However, we need to watch what will happen once the HomeBuilder grant finishes in the next few months and state initiatives such as Victoria’s stamp duty concessions end in the middle of the year. Will first home buyer activity cease and drop back to pre-pandemic levels or is access to cheap finance enough to keep first home buyer activity buoyant?
What does this mean for the future?
Rather than waiting to find out, a group of Liberal MPs led by Tim Wilson have proposed legislation to allow super to be withdrawn by first home buyers for use as part of a deposit. At present, this is just a proposal and hasn’t yet been adopted as government policy by the Coalition party room or by Prime Minister Scott Morrison.
Also, the idea is not new. Accessing super has been proposed on various occasions as a way for those struggling to save sufficient deposit to be able to enter the market.
The latest push by Coalition MPs for the idea to be adopted as government and Coalition Party policy follows the release of a 638-page review of the retirement income system led by former senior Treasury official Mike Callaghan. The review urged the government to prioritise homeownership over super savings. While the review didn’t specifically say anything about releasing super savings to support home loan deposits, it does refer to the financial advantage of owning a home. This is something that Liberal MPs pushing the move to allow access to super have seized upon.
With housing affordability and the ability to save sufficient deposit to buy a first home likely to remain a political issue in the future, the idea of allowing early access to super savings may gain enough traction within the Coalition ranks for legislation to be introduced into parliament later this year. With several cross-bench MPs indicating they would support such a move, it is possible that withdrawing superannuation to bolster savings will become a normal part of a first home buyer’s deposit. If so, the feared drop off in first home buyer activity as existing government initiatives end is unlikely to occur and first home buyer activity may even reach new record highs. Will such legislation be passed into parliament? There appears to be some support for the idea within government ranks, so we can only watch this space.
CLAIM YOUR FREE STRATEGY SESSION BELOW
WEEKLY ARTICLES
HOW WILL THE PROPERTY MARKET MANAGE THE FACEBOOK NEWS BAN?
The Real Estate Institute of Australia (REIA) has urged market players and stakeholders to look beyond Facebook to reach consumers as a news ban on the social media platform takes effect.
Adrian Kelly, president of REIA, said the organisation is currently looking into the situation and its impact on the industry as a whole. However, he said he is confident that the real estate industry will still be able to find ways to reach consumers.
“The COVID-19 has proven that estate agents are very quick to adapt to new technologies and that will be the case in the current environment. As with COVID-19, for agencies and our customers, the show must go on,” he said.
Facebook announced that it will ban news stories on its platform in Australia in response to a proposed law that would compel the social media giant to pay publishers for using their news stories.
CBA BOSS HOSES DOWN HOUSE PRICE BUBBLE WORRIES
Commonwealth Bank boss Matt Comyn has dampened concerns about rising house prices, saying the growth spurt is being fuelled by owner-occupiers not investors piling into the Sydney and Melbourne markets.
With ultra-low interest rates fuelling a surprise rebound in the nation’s property market, Mr Comyn on Friday underlined several distinctive characteristics of today’s market, compared with earlier property booms.
While acknowledging regulators and banks needed to keep an eye on asset prices, Mr Comyn said CBA took confidence from the fact that recent growth was driven by owner-occupiers, rather than investors.
Property investors were the driving force behind the housing boom of 2015, which culminated in regulators imposing “macroprudential” restrictions on bank loans to landlords, and interest-only lending.
Mr Comyn said that in the middle of the last decade, more than half of new lending in Sydney and NSW was flowing to investors. “If you go back to 2014-15, most of that growth was coming out of Sydney and Melbourne,” he said at a Trans-Tasman Business Circle Lunch in Sydney.
“At the moment, the fastest-growing capital cities are Darwin, then Perth, then Canberra.”
WESTPAC FORECASTS 20PC HOUSE PRICE GAINS
Westpac is forecasting 20 per cent gains in the housing market over the next two years.
In a report released Monday, the banking institution’s chief economist Bill Evans said he was expecting dwelling prices to rise 10 per cent nationally in 2021, and said the pace would continue into 2022, off the back of strong economic growth.
“The upturn is being supported by record low interest rates; the confident expectation among borrowers that these rates will remain low for years to come; ample credit supply; and an improving economic backdrop, as the roll-out of vaccines promises to bring the pandemic to an end and drives a sustained lift in confidence,” Evans said.
“The bottom line is that Australia’s housing upturn now has strong momentum that looks to be lifting further and will remain well supported by monetary conditions and an improving economic backdrop.”
Dwelling approvals surged 22 per cent in the final quarter of 2020, and new lending for dwellings lifted by 16 per cent in the December quarter, which Evans says demonstrates a robust and confident housing market.