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Tax cuts will help offset housing slowdown

INCOME tax cuts due in July will offset any slowdown in housing demand, says national land development group, Peet & Co managing director Warwick Hemsley.

Mr Hemsley said fears of a slowdown in housing were overstated.

“Examination of the income tax benefits to flow through to a range of families gives weight to the idea that people will have more real estate purchasing power after the GST than before,” he said.

“If only a small proportion of the increased purchasing power available to people is directed towards property this could underpin prices and fuel increased demand for property.

“For instance, for a couple both earning an average income of $749.40 per week, their combined income tax benefit arising from changes under the GST will be about $2,576 a year.

“If they directed 25 per cent of their tax savings to mortgage repayments they would increase their borrowings capacity to $138,595.21.”

Before the benefit the couple would have the ability to borrow only $132,000 based on a twenty-five year loan with 9 per cent interest and monthly repayments of $1,109.42.

“In addition to this extra borrowing capacity, first-homebuyers will also qualify for the $7,000 homebuyers’ grant which will increase their purchasing capacity further,” Mr Hemsley said.

“This will make a big impact on the property market in states with lower median real estate prices such as WA.”

Mr Hemsley said there had been some unnecessary scare-mongering over the effects of the GST on the residential property market.

“We have shown there is a capacity for the property market to respond positively to the tax savings,” he said.

“Another factor that may underpin the market may be the entry of people who have waited until the pre-GST building boom subsides before beginning to build.”

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