Navigating Australia's Property Maze in 2024: A Rollercoaster of Challenges and Opportunities
December 21, 2023
Prepare to explore Australia's economic landscape where inflation, federal debt, interest rates, migration, and the property market converge in a high-stakes scenario. Secure your seatbelts for a financial journey through the numbers and statistics that shape the economic narrative.
Inflation, Interest Rates, and the Festive Economic Twist
Initiated by inflation and the current formidable interest rates – following a record 13 consecutive hikes, culminate in a 4.25 percentage point increase. For those with a fresh $500,000 mortgage, an additional $15,000 annually is now par for the course. The twist in this tale? This latest round struck just before Christmas, making wallets shrink faster than Frosty the Snowman in summer.
Recent National Accounts data unravels a concerning trend: the household saving-to-income ratio is on life support, plummeting from 2.8 to 1.1 – the lowest since December 2007. We're saving less, way less. While inflation shows signs of moderation, with the Consumer Price Index (CPI) at 5.4% in September, down from its peak at 7.8% in December 2022, the descent is gradual.
Despite some wage growth, real wages are taking a hit, down 7.5% since June 2020. The tax landscape is equally daunting, witnessing a 28% increase in income tax paid over the past year. The staggering numbers speak for themselves – a total household tax take jumping from $65.1 billion to $90.9 billion in the most recent data. Somebody pass the smelling salts!
Government Debt Drama: Balancing the Books
Now, onto the government's economic acrobatics. Australia's debt, edging towards 35% of GDP, is the highest since post-World War 2. Annual repayments at 0.8% of GDP mark the highest government debt interest repayment levels in two decades. The government, having embraced a debt accumulation strategy since the Global Financial Crisis (GFC), faces the imperative of sustaining economic activity amidst rising interest rates – further feeding the inflationary cycle.
Driving the Economic Circus: Retail, Investment, and Property Dynamics
While retailers bask in reported profits, the reality is a hiccup in actual consumer demand. Real household disposable income takes a hit from a triple threat – the dynamic duo of higher inflation and mortgage interest rates, coupled with the taxing hand of, well, taxation. The retail sector's resilience finds its roots in heightened demand fueled by immigration and tourism. Responding to public outcry on immigration and inflation, the government has made concessions, aiming for an 'immigration normalization' to pre-COVID levels. Yet, given the current economic landscape, can they deliver on this promise?
Simultaneously, private and public investments in diverse sectors, paired with robust net exports, stand out as a catalyst behind economic growth. It's a three-ring circus where the spotlight shifts between consumer dynamics, governmental promises, and the driving forces propelling Australia's economic spectacle.
The Property Conundrum: A Tightrope Walk
The golden goose of the Australian economy, property, is facing challenges. Homeowners aged 45 and above are sipping on financial cocktails while the younger crowd's got the hangover. Property is the sacred cow of the Aussie economy, and the system's designed to milk it at all costs. Housing supply? Tighter than a kangaroo's pouch. The plea from the masses? "Government, do something!"
Attempts to fast-track development approvals have been made, but the onus falls on private investors and industry players. Many developers are weathering all-time-low EBITDA's (as low as 1.5%!), residential builders face liquidation, and mom-and-pop developers are squeezed out due to finance limitations. So, the question remains unanswered: who will build and finance all these new homes?
Anticipating 2023: A Mixed Outlook
Fasten your seatbelts. 2023's approaching with mixed vibes. As we turn our gaze to 2023, the economic horizon appears mixed. Economic data screams stretched household budgets, hinting at an interest rate reduction cycle from mid-2023. Yet, those with equity and property? They're gearing up for a FOMO-driven grand finale, destined to drive property prices higher.
For those keen on seizing the moment, there's a chance to dive headfirst into the market and position yourself strategically for the impending conditions. Whispers from government circles have dropped hints about the sectors slated for density boosts, streamlined planning approvals, and additional infrastructure backing. Being ahead of the curve, scouting potential sites, initiating agreements, and skilfully negotiating to postpone financial commitments until conditions become more favourable is just one playbook we envision unfolding in the coming year. If you're eager to explore your options and gear up for a proactive approach, let's arrange a conversation with our team in the upcoming year.