December 2020
December and summer are finally here, along with a renewed sense of optimism that strict lockdown measures will ease by Christmas. It’s been a tough year, but once again Australians have proved extremely resilient. We wish all our clients and their families a relaxed and happy Christmas.
November was an extraordinarily action-packed month for the global and local economy. Joe Biden’s US election victory released a pressure valve on global markets, with US shares reaching new historic highs and Australian shares up more than 9% over the month.
Markets also responded positively to the potential early release of effective coronavirus vaccines despite a rise in global cases. Oil prices were quick to respond to the prospect of borders reopening, with Brent Crude up almost 22% over the month.
In Australia, the Reserve Bank (RBA) cut its target cash rate and 3-year government bond yields from 0.25% to 0.1%, or one tenth of one percent. The RBA is not expecting to increase rates for at least three years. Early indications are that swift action by the government and the RBA have limited the impact of the COVID recession. Economic growth is now forecast to contract 4% in 2020, before rebounding 6% in the year to June 2021. Unemployment, which rose slightly to 7% in October, is forecast to peak at 8% this year but to remain at a relatively high 6% in December 2022. This is reflected in the fall in annual wages growth from 1.8% to 1.4% in the year to September. The Aussie dollar rose 5% on US dollar weakness in November, to close at US74c. The US currency is falling as a spike in coronavirus infections and delays in government stimulus raise the prospect of more money printing.
‘Tis the season for wise spending decisions
The traditional festive holiday season is likely to be a little different this year, but one thing is likely to remain the same – the temptation to spend and the post-Christmas budget hangover.
Last year Australians spent about $1000 each for Christmas on presents, decorations, travel and charity donations. For 28 per cent of us, this expenditure meant using credit cards or buy now pay later (BNPL).i
While many will use credit again this festive season, the current economic circumstances may make us think twice about our spending. It’s not just what you spend, but how you spend that could make all the difference.
So, if you plan to use credit to help manage your Christmas spending, what are the options?
Buy now, pay more later?
Even before COVID, more and more people were turning away from the traditional credit card and opting instead for a buy now, pay later payment method. BNPL providers in Australia include companies such as Afterpay and Zip, but there are many more.
The use of BNPL may be due to convenience or an aversion to debt, or a bit of both.
In a recent report, the Australian Securities and Investments Commission (ASIC) found BNPL transactions jumped by 90 per cent to 32 million in the 2018-19 financial year.ii
Meanwhile, the number of credit card accounts fell 7 per cent in the 12 months to March 2020 from 14.6 million to 13.6 million.iii
But for those who still use a credit card, it is estimated that more than 2 million Australians have gone over their limit since March this year as the economic slowdown takes its toll on household finances.iv
Initially BNPL was popular with millennials, but over time more baby boomers and Gen X have opted for this form of credit which boasts that it is interest free. Compare that with interest on credit card balances which are mostly in double digits and can even be as high as 20 per cent.
But don’t be fooled.
Watch for fees
There may be no interest rates on buy now pay later, but there are fees and these can quickly add up.
All BNPL providers have slightly different terms and conditions, but fees may include:
- Late fees of up to $15 a month
- Monthly account keeping fees of up to $8 a month
- Payment processing fee of $2.95 every time you make an extra payment
- Establishment fees can range from zero to $90.v
,
Of course, that does not mean you should avoid buy now, pay later offerings. If you meet all your payments on time, then it can be a useful form of credit. The key is to be cautious.
For instance, do not run up debt with multiple providers. Not only can that prove expensive, but it can also be difficult to manage. It can soon become expensive if you have late payment fees to pay to several providers.
ASIC research found one in five BNPL users missed payments in the 2018-19 financial year. This translated into fee revenue of $43 million for providers, a jump of 38 per cent over the year and financial hardship for 21 per cent of users. As a result, ASIC said some people were cutting back on meals and other essentials or taking out additional loans to make BNPL payments on time.
Bank alternative
Now the big banks are meeting the challenge of BNPL to traditional credit cards head on, with the launch of interest free credit cards and partnerships with BNPL providers.
While the new interest free credit cards have no interest charges or late fees, they typically have a minimum monthly payment and a monthly fee in months where you don’t make a transaction.
Finding money for everyday items, let alone festive spending, has become a juggle for many this year. The gradual transitioning away from support payments such as Job Keeper and Job Seeker won’t make things any easier.
Whatever your financial circumstances, if you monitor your money carefully and make changes to your expectations, then there is no reason why this festive season can’t be just as good this year as last. One of the lasting benefits of 2020 may well be that it makes us more proactive about managing our money wisely.
i https://www.finder.com.au/australias-christmas-spending-statistics
v https://moneysmart.gov.au/other-ways-to-borrow/buy-now-pay-later-services
Buachailli Pty Ltd ABN 57 115 345 689 atf Harlow Family Trust t/as Queensland Financial Group is a Corporate Authorised Representative of Synchron AFS Licence No. 243313 This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.
Making your savings work harder
With tax cuts and stimulus payments on the way, Treasurer Josh Frydenberg is urging us to open our wallets and spend to kick start the national economy. But if your personal balance sheet could do with a kick along, then saving and investing what you can, also makes sense.
One positive from this COVID-19 induced recession, is that it has made many of us more aware of the importance of building a financial buffer to tide us over in lean times. Even people with secure employment have caught the savings bug.
According to the latest ME Bank Household Finance Confidence Report, 57 per cent of households are spending less than they earn. This is the highest percentage in almost a decade.i
More troubling however, was the finding that one in five households has less than $1,000 in savings, and only one third of households could maintain their lifestyle for three months if they lost their income.
Whatever your financial position, if saving is a priority the next step is deciding where to put your cash.
Banking on low interest
Everyone needs cash in the bank for living expenses and a rainy day. If you’ve been caught short this year, then building a cash buffer may be a priority.
If you have a short-term savings goal such as buying a car or your first home within the next year or so, then the bank may also be the best place for your savings. Your capital is guaranteed by the Government so there’s no risk of investment losses.
But with interest rates close to zero, the bank is probably not the best place for long-term savings. So once your need for readily accessible cash is covered, there are more attractive places to build long-term wealth.
Pay down your mortgage
If you have a mortgage, then making extra repayments can reduce the total amount of interest you pay and cut years off the life of your loan. This strategy has the most impact for younger people in the early years of a 25 to 30-year loan.
If your mortgage has a redraw or offset facility, you can still access your savings if you need cash for an emergency or home renovations down the track. This may be a deciding factor if retirement is a long way off.
Boost your super
Making extra super contributions is arguably the most tax-effective investment, especially for higher income earners.
Even so, super is likely to be more attractive as you get closer to retirement, the kids have left home, and your home is close to being paid off. (see Mortgage or super below).
You can make personal, tax-deductible contributions up to the annual cap of $25,000. Be aware though that this cap includes super guarantee (SG) payments made by your employer and salary sacrifice amounts.
You can also make after-tax contributions of up to $100,000 a year up to age 75, subject to a work test after age 67.
Mortgage or super?
A question often asked is whether it’s better to put savings into super or your mortgage. Well, it depends on factors including your age, personal circumstances and preferences, interest rates and tax bracket.
Mitch is 35 with 25-year, $500,000 mortgage and monthly repayments of $2,300. If he increases his repayment by $400 a month, he could cut five years off the term of his loan and save almost $40,000 in interest.ii
But what if Mitch were to salary sacrifice that extra $400 a month into his super? He currently earns $85,000 a year which puts him in the 34.5 per cent tax bracket, including the Medicare Levy. By age 60, his super balance would be around $138,000 higher than if he relied on his employer’s SG contributions alone.
Mathematically, Mitch would be better off putting extra savings into super than his mortgage. But he and his partner Grace are planning to marry and start a family, so getting on top of the mortgage and having access to his savings to upgrade their home and fund their kids’ education is a bigger priority than retirement right now.
It’s different for Gail, who at age 55 has $200,000 and 10 years left on her mortgage and just $100,000 in super. If she puts an extra $400 a month into her mortgage, she will save around $5,800. But if she salary sacrifices $400 a month into super until age 65, she will boost her balance by around $48,000 and still manage to pay her home off by the same time.iii
Invest outside super
If you would like to invest in shares or property but don’t want to lock your money away in super until you retire, then you could invest outside super.
If you are new to investing, you could wait until you have saved $5,000 or so in the bank and then buy a parcel of shares or an exchange-traded fund (ETF). ETFs give you access to a diversified portfolio of investments in a particular market, market sector or asset class.
First home buyers might consider the Federal Government’s expanded First Home Loan Deposit Scheme with as little as 5 per cent deposit. There are limited packages available and price caps on the home value, depending on where you live.
With tax cuts set to flow and a new appreciation of the importance of financial security, now is the perfect time to start a savings plan. Contact our office if you would like to discuss your savings and investment strategy.
ii Calculations using the MoneySmart mortgage calculator, 14 October 2020, using default assumptions.
https://moneysmart.gov.au/home-loans/mortgage-calculator
iii Calculations using the MoneySmart super calculator, 14 October 2020, using default assumptions.
https://moneysmart.gov.au/how-super-works/superannuation-calculator
Buachailli Pty Ltd ABN 57 115 345 689 atf Harlow Family Trust t/as Queensland Financial Group is a Corporate Authorised Representative of Synchron AFS Licence No. 243313 This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.
Economic Update Video – October 2020
The biggest government stimulus program since WWII has resulted in a budget deficit of $85.3 billion in the 2019/20 FY, with more spending on the cards to drive economic growth.
The Reserve Bank has kept the cash rate at its current record low of 0.25%.
Please get in touch if you’d like assistance with your personal financial situation.
Buachailli Pty Ltd ABN 57 115 345 689 atf Harlow Family Trust t/as Queensland Financial Group is a Corporate Authorised Representative of Synchron AFS Licence No. 243313 This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.
Federal Budget 2020-21 Analysis
Building a bridge to recovery
In what has been billed as one of the most important budgets since the Great Depression, and the first since the onset of the COVID-19 pandemic dragged Australia into its first recession in almost 30 years, Treasurer Josh Frydenberg said the next phase of the journey is to secure Australia’s future.
As expected, the focus is on job creation, tax cuts and targeted spending to get the economy over the COVID-19 hump.
The Treasurer said this Budget, which was delayed six months due to the pandemic, is “all about helping those who are out of a job get into a job and helping those who are in work, stay in work”.
The big picture
After coming within a whisker of balancing the budget at the end of 2019, the Treasurer revealed the budget deficit is now projected to blow out to $213.7 billion this financial year, or 11 per cent of GDP, the biggest deficit in 75 years.
With official interest rates at a record low of 0.25 per cent, the Reserve Bank has little firepower left to stimulate the economy. That puts the onus on Government spending to get the economy moving, fortunately at extremely favourable borrowing rates. And that is just as well, because debt and deficit will be with us well into the decade.
The Government forecasts the deficit will fall to $66.9 billion by 2023-24. Net debt is expected to hit $703 billion this financial year, or 36 per cent of GDP, dwarfing the $85.3 billion debt last financial year. Debt is expected to peak at $966 billion, or 44 per cent of GDP, by June 2024.
The figures are eye-watering, but the Government is determined to do what it takes to keep Australians in jobs and grow our way out of recession.
So, what does the Budget mean for you, your family and your community?
It’s all about jobs
With young people bearing the brunt of COVID-related job losses, the Government is pulling out all stops to get young people into jobs. Youth unemployment currently stands at 14.3 per cent, more than twice the overall jobless rate of 6.8 per cent.
As we transition away from the JobKeeper and JobSeeker subsidies, the Government announced more than $6 billion in new spending which it estimates will help create 450,000 jobs for young people.
“Having a job means more than earning an income,” Mr Frydenberg said.
Measures include:
- A new JobMaker program worth $4 billion by 2022-23, under which employers who fill new jobs with young workers who are unemployed or studying will receive a hiring credit of up to $10,400 over the next year. Employers who hire someone under 29 will receive $200 a week, and $100 a week for those aged 30-35. New employees must work at least 20 hours a week to be eligible.
- A $1.2 billion program to pay half the salary of up to 100,000 new apprentices and trainees taken on by businesses.
In recognition that the pandemic has had a disproportionate impact on women’s employment, the Budget includes the promised “Women’s economic security statement” but the size of the support package may disappoint some.
Just over $240 million has been allocated to “create more opportunities and choices for women” in science, technology, engineering and mathematics (STEM) as well as male-dominated industries and business.
Housing and infrastructure
As part of its job creation strategy, the government also announced $14 billion in new and accelerated infrastructure projects since the onset of COVID.
The projects will be in all states and territories and include major road and rail projects, smaller shovel-ready road safety projects, as well as new water infrastructure such as dams, weirs and pipelines.
The construction industry will also be supported by the first home loan deposit scheme being extended to an extra 10,000 new or newly built homes in 2020-21. This scheme allows first home owners to buy with a deposit as low as 5 per cent and the Government will guaranteeing up to 15 per cent.
Personal tax cuts
As widely tipped, the government will follow up last year’s tax cut by bringing forward stage two of its planned tax cuts and back date them to July 1 this year to give mostly low and middle-income taxpayers an immediate boost.
As the table below shows, the upper income threshold for the 19 per cent marginal tax rate will increase from $37,000 a year to $45,000 a year. The upper threshold for the 32.5 per cent tax bracket will increase from $90,000 to $120,000.
As a result, more than 11 million Australians will save between $87 and $2,745 this financial year. Couples will save up to $5,490.
| Marginal tax rate* | Previous taxable income thresholds | New taxable income thresholds |
| 0% | $0-$18,200 | $0-$18,200 |
| 19% | $18,201-$37,000 | $18,201-$45,000 |
| 32.5% | $37,001-$90,000 | $45,001-$120,000 |
| 37% | $90,001-$180,000 | $120,001-$180,000 |
| 45% | More than $180,000 | More than $180,000 |
| Low income tax offset (LITO) | Up to $445 | Up to $700 |
| Low & middle income tax offset (LMITO) | Up to $1,080 | Up to $1,080** |
*Does not include Medicare Levy of 2%
**LMITO will only be available until the end of the 2020-21 income year.
You don’t need to do anything to receive the tax cuts. The Australian Taxation Office (ATO) will automatically adjust the tax tables it applies to businesses and simply take less. It will also account for three months of taxes already paid from 1 July this year so workers can catch up on missed savings.
Business tax relief
In another move that will help protect jobs in the hard-hit small business sector, business owners will also get tax relief through loss carry back provisions for struggling firms. This will allow them to claim back a rebate on tax they have previously paid until they get back on their feet.
Businesses with turnover of up to $5 billion a year will be able to write off the full value of any depreciable asset they buy before June 2022.
Cash boost for retirees
Around 2.5 million pensioners will get extra help to make up for the traditional September rise in the Age Pension not going ahead this year. However, self-funded retirees may feel they have been left out.
Age pensioners and as well as people on the disability support pension, Veterans pension, Commonwealth Seniors Health Card holders and recipients of Family Tax Benefit will receive two payments of $250 from December and from March.
This is in addition to two previous payments of $750 earlier this year.
Health and aged care
After the terrible toll the pandemic has waged on aged care residents and the elderly, the Government will add 23,000 additional Home Care packages to allow senior Australians to remain in their home for as long as possible.
Funding for mental health and suicide prevention will also be increased by $5.7 billion this year, with a doubling of Medicare-funded places for psychological services.
Super funds on notice
Underperforming super funds are to be named and shamed with a new comparison tool called Your Super. This will allow super members to compare fees and returns.
All funds will be required to undergo an annual performance test from 2021 and underperforming funds will be banned from taking on new members unless they do better.
Looking ahead
As the underlying Budget assumptions are based on finding a coronavirus vaccine sometime next year, Government projections for economic growth, jobs and debt are necessarily best estimates only.
Only time will tell if Budget spending and other incentives will be enough to encourage business to invest and employ, and to prevent the economy dipping further as JobKeeper and JobSeeker temporary support payments are wound back.
Another test will be whether the Budget initiatives help those most affected by the recession, notably young people and women.
The Government has said it is prepared to consider more spending to get the economy out of recession. The Treasurer will have another opportunity to fine tune his economic strategy fairly soon, with the next federal budget due in just seven months, in May 2021.
If you have any questions about any of the Budget measures and how they might impact your finances, don’t hesitate to contact us.
Information in this article has been sourced from the Budget Speech 2020-21 and Federal Budget support documents.
It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change.
Buachailli Pty Ltd ABN 57 115 345 689 atf Harlow Family Trust t/as Queensland Financial Group is a Corporate Authorised Representative of Synchron AFS Licence No. 243313 This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.
COVID-19 Extensions
As the impact of the coronavirus on our daily lives and livelihoods rapidly evolves, below are the latest measures released by the Government to reduce both the impact to the nations health, economy, household and business finances.
At times like these it’s important to have someone to talk to, so we urge you to contact us if you have concerns about your finances.
To further support Australian businesses through the fallout resulting from COVID-19, the government has extended the $150,000 instant asset write-off for an additional six months to 31 December 2020.
Initially announced on 12 May and intended to last until 30 June, the government’s $17.6bn stimulus package in part temporarily increased the threshold of the instant asset write off up from $30,000.
Businesses with turnover less than $500 million can continue writing off newly purchased, multiple assets, provided that each item is worth up to $150,000. Assets need to be first used or installed ready for use by 31 December.
The government anticipates that over 3.5 million businesses will be eligible to benefit from the extension of the scheme.
It is devised to encourage business owners to follow through with the investment they already had planned before the COVID-19 crisis, and assist others to invest sooner than intended to support economic growth over the near term. The measure is also intended to help to improve cash flow for businesses by bringing forward cash deductions.
The Government is extending the Coronavirus Supplement to eligible recipients to 31 December 2020. The amount of the Supplement will be adjusted to reflect the gradually improved economic conditions and improving labour market.
Both existing and new recipients eligible for the Coronavirus supplement will continue to be $550 per fortnight up to and including 24 September 2020. From 25 September, the $550 per fortnight coronavirus supplement, which effectively doubled the fortnightly income support payment, will be reduced to $250 per fortnight.
New eligibility testing
From 25 September 2020, new eligibility testing and access to payments for new and existing JobSeeker and other income support recipients will also be introduced. These include;
- Income free threshold increase: from 25 September 2020 until 31 December 2020, the income free threshold for the JobSeeker Payment recipients will increase from $106 per fortnight to $300 per fortnight. The threshold for other income support payment recipients will increase to $300 from $143 per fortnight.This means recipients can earn up to $300 per fortnight and continue to receive the maximum payment rate for the JobSeeker Payment and other income supper payments. If recipients earn over that threshold, they will still see their JobSeeker allowance tapered down.
- Means testing: the government will also re-introduce an asset test for eligibility for all payments and the Liquid Assets Waiting Period (LAWP) for all payments will be reinstated.
- Partner income testing: the partner income test cut-out will increase to $3,086.11 per fortnight, or $80,238.89 per annum, for individuals with no personal income, from 25 September 2020. The partner income test taper rate will increase to 27 cents on 25 September 2020 until 31 December 2020.
- Reinstated job-seeking requirement: from 9 June 2020, the mutual obligation requirements were reintroduced including;
- voluntary job searches;
- at least one phone or online appointment with a jobseeker’s employment services provider;
- voluntary participation in activities, either online or in person; and
- no payment suspensions or penalties for failure to comply.
Please don’t hesitate to give us a call if you have any questions about how the changes to the JobSeeker Payment will impact your financial situation.
Information in this article has been sourced from the Treasury website: https://treasury.gov.au/sites/default/files/2020-07/Fact_sheet-Income_Support_for_Individuals.pdf
Buachailli Pty Ltd ABN 57 115 345 689 atf Harlow Family Trust t/as Queensland Financial Group is a Corporate Authorised Representative of Synchron AFS Licence No. 243313 This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.
Housing market: shaken but not stirred
With Australia in a COVID-induced recession, residential property is not immune to falling economic activity. Yet housing prices are proving surprisingly resilient.
Only months ago, economists were forecasting a housing price slump of 20 per cent or more. Now, most have revised their forecasts to price falls of between five and 10 per cent.
The more optimistic predictions are due to Australia’s success at containing the coronavirus, the gradual lifting of restrictions and government stimulus aimed at keeping Australians in work. The most recent of these measures is the HomeBuilder package.
Housing stimulus
The Morrison Government’s HomeBuilder package, announced on June 4, offers homebuyers a grant of $25,000 to build a new home worth less than $750,000. The grant can also be spent on renovations valued between $150,000 and $750,000 to an existing home valued at no more than $1.5 million.
The scheme is limited to owner-occupiers (not investors) on incomes below $125,000 for singles and $200,000 for couples. The amount of money on offer is uncapped, but the government expects it to cost about $688 million for roughly 27,000 grants.
To be eligible, renovators must sign a contract with a builder by the end of 2020. They will need to have plans drawn up, finance approved, and any building and development approvals secured.
The package has been well-received by the housing industry, which hopes it will encourage buyers to bring forward purchases and support construction jobs.
Construction activity in the doldrums
The value of residential construction work done in the March quarter fell 2.9 per cent, or 12.3 per cent over the year to March.i That’s a significant hit to the economy, given that construction is the third biggest contributor behind mining and financial services, and housing represents the lion’s share of all building activity.ii
While critics argue the HomeBuilder package is too limited in scope and time to make a significant impact, it is more likely to support house prices than harm them.
House prices marking time
According to CoreLogic, national home prices edged up 0.6 per cent in the three months to the end of May, at the height of the economic shutdown. Melbourne was the only market to lose ground during that period (-0.8 per cent) but all regions lost momentum.
However, sales activity bounced back by an estimated 18.5 per cent in May after a drop of 33 per cent in April. While the housing market remains subdued, the rise in sales coincided with an easing of social distancing restrictions, the arrival of JobKeeper payments in people’s pockets and growing consumer confidence. The ANZ-Roy Morgan consumer confidence index rose 42 per cent in the eight weeks following its trough in mid-March.
In another positive sign of increased economic activity, auction clearance rates recovered from a low of 30 per cent in April to 63 per cent in late May as restrictions on open homes and auctions eased.
On an annual basis, national home values rose 8.3 per cent in the year to May with Perth (-2.1 per cent) and Darwin (-2.6 per cent) the only capital cities where prices are still lower than a year ago.iii
Change in dwelling values
| Quarter | Annual | Gross yield | Median value | |
| Sydney | 1.1% | 14.3% | 3.0% | $885,159 |
| Melbourne | -0.8% | 11.7% | 3.2% | $686,798 |
| Brisbane | 0.8% | 4.3% | 4.4% | $508,386 |
| Adelaide | 1.1% | 1.8% | 4.4% | $441,184 |
| Perth | 0.1% | -2.1% | 4.3% | $443,669 |
| Hobart | 0.5% | 6.2% | 4.9% | $486,056 |
| Darwin | 2.1% | -2.6% | 5.8% | $393,939 |
| Canberra | 1.2% | 5.1% | 4.7% | $637,279 |
| Combined regionals | 1.1% | 3.5% | 4.9% | $397,388 |
| National | 0.6% | 8.3% | 3.8% | $557,818 |
Source: CoreLogic Home Value Index as at 31 May 2020
Rents and yields falling
Rents in every capital city except Perth fell in the two months to May. Inner city apartments were worst hit, due to a glut in supply and falling demand from international students and out-of-work locals.
Falling rents are welcome news for renters, especially in cities like Hobart where a booming property market and the conversion of long-term rentals into short-term Airbnb lets had priced many out of the market.
However, falling rents are not so good for property investors. Rental yields were 3.8 per cent nationally in May, although higher in regional areas (4.9 per cent) than capital cities (3.5 per cent).
According to CoreLogic, there is a strong chance that rents will fall more than housing values, putting further pressure on rental yields, with yields in Sydney and Melbourne already at or near record lows.iii
Looking ahead
While the outlook for the property market is brighter than feared, there are still challenges ahead.
One test will come after September when JobKeeper payments and loan repayment holidays are removed. There is a risk that mortgage arrears and distressed sales could increase at that time. While unemployment is now expected to peak at around 8 per cent, not 10 per cent as previously forecast, it is not expected to return to pre-pandemic levels for at least two years.iv
On the positive side, interest rates remain at record lows and the OECD expects the Australian economy will bounce back by 4.1 per cent next year (if the coronavirus is kept under control), after a contraction of 5 per cent in 2020. This is a better economic performance than almost any other nation.v
While the outlook for property is still uncertain, the stirrings of economic activity are encouraging. If you would like to discuss your property strategy in the light of current market developments, please get in touch.
i https://www.abs.gov.au/ausstats/abs@.nsf/mf/8755.0
ii https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/
v https://www.afr.com/policy/economy/australia-leads-on-economic-recovery-oecd-20200610-p5514b
Buachailli Pty Ltd ABN 57 115 345 689 atf Harlow Family Trust t/as Queensland Financial Group is a Corporate Authorised Representative of Synchron AFS Licence No. 243313 This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.