Mixed response for grant reprieve

For the property market, the most important revelation to come out of the federal budget was that first-home buyers will get some reprieve with the boost to the first-home buyers grant being extended to the end of September. After this the boost will be halved, providing a $10,500 bonus to first-timers buying an existing dwelling, or $14,000 for those buying a new home.

This decision is sure to be met with a mixed response. Many people have been vocal in their disapproval of the grant, suggesting the incentive has brought forward demand from first-home buyers and artificially inflated prices in our mortgage belts.

On the flipside, the argument is that demand from first buyers has been relatively flat since 2004. As interest rates dived, house values fell and the Government provided a boost to the grant. Pent-up demand was released, resulting in the flurry of activity we now see. For many of these affordable areas the recent price growth is simply offsetting the falls in housing prices that many recorded between 2004 and 2009.

I expected the Government to maintain the $21,000 boost for new dwellings and wind back the grant for existing dwellings to $7000. The logic for this is it makes sense to focus the greatest stimulus on areas of the housing market that will provide the greatest benefit to the economy. A focus on stimulating new dwelling sales would also help alleviate our chronic housing undersupply.

Another budget announcement likely to affect the property market is the $22billion allocated to infrastructure spending. The key benefactors will be regions along the eastern seaboard, particularly south-east Queensland.

Yet perhaps the most immediate requirement is to establish links between the outer fringes of our metro areas where the large proportion of our population growth is concentrated. Many of these regions are in desperate need of transport infrastructure improvements and public transport options. This is where the most affordable land is, yet few want to live where travel routes are congested or are substandard.

For investors, targeting those areas earmarked to benefit from infrastructure upgrades can result in strong capital growth as the projects near completion.

Changes to the Skilled Occupations List

Changes to the Skilled Occupations List (SOL) have been made by the Department of Immigration and Citizenship (DIAC) in consultation with the Department of Education, Employment and Workplace Relations (DEEWR).

The Skilled Occupations List (SOL) lists all occupations that the Government considers to be a skilled profession for purposes of migration to Australia. Applicants for a General Skilled Migration visa must nominate a skilled occupation listed on the SOL in order to gain points towards their Australian visa application.

They must also have their nominated skills assessed by an approved assessing body before their application will be accepted by DIAC.

The Government periodically reviews the SOL so that it remains reflective of the Australian economy, and this week, after consultation with DEEWR, DIAC have released a revised version of the SOL to go live on 15 May 2009.

While no occupations have been removed or added from the SOL, the Government has changed the assessing requirements for occupations. Now, Vocational Education and Training Assessment Services (VETASSESS) can act as a co-assessing authority alongside the Trades Recognition Authority (TRA) for all countries except “recognised countries” for the following occupations:

4311-11 General Electrician
4431-11 General Plumber
4312-11 Refrigeration and Air-conditioning Mechanic
4211-11 Motor Mechanic
4411-11 Carpenter and Joiner
4411-13 Carpenter
4411-15 Joiner
4313-11 Electrical Powerline Tradesperson
4313-13 Cable Jointer
4414-11 Bricklayer
4311-01 Supervisor, Electricians
4312-01 Supervisor, Plumbers
4411-01 Supervisor, Carpentry and Joinery Tradespersons
4313-01 Supervisor, Electrical Distribution Tradespersons
4414-01 Supervisor, Bricklayers
4211-01 Supervisor, Motor Mechanics

“Recognised Countries” are UK, India, Sri Lanka, South Africa and the Philippines.

Effectively, this means that skilled applicants in the above trades, who are not residents of any recognised country, now have another option to TRA to have their skills assessed in order to complete their Australian visa application.

It is not clear whether VETASSESS has plans to conduct practical assessments in any other country but they may consider doing so, depending on demand.

China buoys economy: RBA

The Reserve Bank left its key interest rate unchanged today, citing a revival in China as cause for hope that the worst may be over.

Official interest rates are at a 49-year low of 3%, where the central bank has moved them in response to the slowing economy.

Silver lining on interest rates

Business Day reporter Chris Zappone sees hope for homeowners despite the Reserve Bank’s decision to leave interest rates unchanged.

”While the near-term outlook remains weak, there are further signs of stabilisation in several countries,” said Governor Glen Stevens in a statement. ”The Chinese economy in particular has picked up speed in recent months and many commodity prices have firmed a little.”

”I think they feel they’ve done enough,” said economist Adam Carr of ICAP. ”There would need to be a further deterioration in the labour market or a flare up in the financial crisis to push them into cutting again.”

Mr Carr foresees no chance of a rate cut until after the June quarter inflation numbers are released on July 22.

The RBA has cut 425 basis points from interest rates since September in an effort to blunt the worst effects of the recession.

In that time, repayments on an average $400,000 mortgage have fallen by about $1000 a month as commercial banks passed on most of the RBA’s cuts.

Financial markets took the RBA’s announcement in its stride, with stocks little changed. The Australian dollar, though, rose marginally to 74.11 US cents, but later dropped back below 74 US cents.

Fragile confidence

Financial markets have risen for most of the past two months, placing most stock markets – including Australia’s – back into positive territory for the year.

The RBA’s statement noted the ”path of gradual improvement” in equity markets and a revival of credit markets but warned that more economic pain is on the way.

”(C)onfidence remains fragile and balance sheets are under pressure from the effects of economic weakness on asset quality,” Mr Stevens said. ”Credit remains tight.”

The central bank noted that the Australian economy started shrinking towards the end of 2008, and the contraction has continued ”in 2009 to date,” both at home and abroad.

It predicted wage increases will diminish as unemployment rises, helping to ease inflation further.

Banking on China

Recent data pointing to a rebound in China – likely to become Australia’s largest trading partner this year – is underpinning much of the RBA’s stance, said TD Securities Senior Strategist Annette Beacher.

”We were looking for more of an easing bias in the statement given the weak data flow and we expect the weak data to continue,” said Ms Beacher. ”But it appears the RBA is staunchly convinced of a Chinese recovery.”

Yesterday a gauge of Chinese manufacturing rose to its highest in nine months, while other measures including investment spending have also been trending higher.

In Australia, though, several key indicators are likely to get worse before improving, including unemployment, denting government revenues and sapping wider demand in the economy.

The jobless rate, currently at 5.7% is tipped to rise to 5.9% on Thursday. JP Morgan economist Helen Kevans forecasts the unemployment rate climbing to 9% by the end of 2010 as the economy gets dragged down by the global recession.

HiFX senior consultant Tom Averill said the RBA’s mention of the Chinese economy helped send the dollar higher.

The statement indicated that ”the policy stimulus put into effect by Australia and the broader world is having an effect of containing the downturn,” echoing the comments of US Fed Chairman Ben Bernanke, said Mr Averill.

Budget

The RBA’s faith in the combined stimulus may mean its cash rate has hit bottom at 3%, according to analysts, including HSBC’s chief economist John Edwards.

”Next week’s Budget will confirm a substantial deficit and associated fiscal impulse,” Mr Edwards wrote in a note to clients.

”As Mr Stevens notes today, the effect of earlier rate cuts and their impact on household income have yet to become fully apparent.”

The Federal budget is expected to include additional spending, with a budget deficit predicted to swell to more than $50 billion for the coming financial year.

Victoria’s state budget, announced today, contains $11.5 billion in additional spending, and predicts economic growth to remain positive.

Home sales climb to 13-month high

New home sales rose to their highest level in 13 months in March, as the first-home buyers grant buoyed demand.

Total new home sales rose by 4.2% last month to 8210, accelerating from the 3.9% growth pace in February, according to the Housing Industry Association. The increase marked the third month of gains.
 
”It is clear that in the first quarter of 2009 the project home building market was buoyed by the First Home Owners Boost for new dwellings together with very low variable mortgage rates,” said HIA Chief Economist Dr Harley Dale in a statement.

”The First-Home Owners Boost for new dwellings is clearly lifting residential building activity and securing jobs within the Australian economy,” he said, calling for an extension of the program past its June 30 cut-off.

Federal Government leaders, including Prime Minister Kevin Rudd, have hinted they intend to scale back incentives for first-home buyers, announced as part of the first round of stimulus spending aimed at reversing the economic slump. The current grant rises to as much as $21,000 if the purchase is for a newly built residence.

NSW leads

Among the states, detached home sales jumped 4.1% in March, led by New South Wales, where they increased 15.2%.

”While the rate of growth in sales reflects to an extent the low base from which a recovery is emerging,” the HIA report said, ”there is no doubt that the previously mentioned triple boost from low interest rates, stimulus to first-home buyers, and builder discounts have injected some life into a previously moribund new home building market, especially in Sydney.”
 
Sales of detached houses also jumped 14.6% in Victoria and 7.3% in Western Australia, the HIA said.

Low interest rates and the first-home owners’ boost are having a targetted effect, spurring house sales but leaving multi-unit sales ”at very weak levels,” the HIA said.

Sales of apartments rose 4.7% in March, following a flat February and four straight months of falls, HIA said.

”This reinforces the fact that while investor enquiries have increased in recent months, actual building activity in the residential investment space is still heading south, a concerning sign for low and lower middle income rental households.”