Which direction property prices will go now after Coalition win?

The results are in and to the surprise of many, Scott Morrison has led the Coalition to win this year’s Federal election.

And this means our housing markets are likely to pick up by the end of the year.

The stability of government and the fact that there are no changes to negative gearing or Capital Gains Tax will encourage investors.

The market hates uncertainty, and the Coalition win should return confidence to our subdued property.

The timing of the bottom of this downturn will however depend upon the banks loosening lending restrictions and the timing of any interest rate cuts – the first of which seems likely next month and deliver a boost to our languishing markets.

Sure, we’re still in the slump phase of the property cycle with prices around Australia falling since late 2017, but there were green shoots appearing before the election campaign stalled things.

 

Things are slowly improving.

  • While property prices are still falling, the rate of decline is easing.
  • Auction clearance rates are improving, albeit on much lower volumes than a year ago.
  • Buyers are back in the market. Particularly first home buyers encouraged by incentive packages, but also established home buyers and investors.

However, there are still headwinds holding things back including our constrained economy, low inflation, minimal wages growth and rising unemployment.

First Home Buyers Win.

First home buyers (FHBs) have been promised some assistance under a Coalition government.

It has indicated it will assist a FHBs and enable them to buy their home with a deposit of only five per cent without having to take out Lenders’ Mortgage Insurance.

While the details of this scheme aren’t clear yet, FHB’s will still be required to meet the bank’s current strict lending criteria and, in my mind, the scheme creates potential risks around lending to households with a smaller deposit and no savings discipline.

Property Investors Win.

Many property investors rely on the tax benefits of negative gearing to subsidise their cash flow shortfall in the first years of owning a property investment.

The problem is that many people with only a hazy idea of what it actually is, blame negative gearing for virtually everything from locking first home buyers out of the market, to causing high property price rises, to ugly greedy investors rorting the tax system.

A property is negatively geared when the costs of owning it – interest on the loan, bank charges, maintenance, repairs and depreciation – exceed the income it produces.

Since the costs of producing an income are generally deductible against the taxpayer’s other income, property investors can effectively offset some of the interest expense against their wages.

In return we expect to get a reasonable return on our investment risk, just like other business people do.

We know that the rent won’t cover our expenses, accept that certain tax benefits plus the long-term capital growth will make up for this.

Sometimes it does, and sometimes it doesn’t.

The fact that negative gearing tax benefits remain and there is no increase in Capital Gains will encourage investors to return to the market and take on these business risks.

Home Owners Win.

While some home buyers have been having difficulty getting finance, others have held off waiting for the uncertainty about the property markets to clear.

As our property markets turn later in the year and more good news appears in the media, home buyers will regain confidence.

When this occurs, home sellers who have been putting off upgrading or downgrading their homes in fear of not being able to sell at a reasonable price, will return to the markets.

It looks like we’re in for some good times in property ahead.

 

*source Michael Yardney’s Property Update 

Posted in Latest news, News on 21st May, 2019