Property Research has
significantly downgraded the risks to the property market, particularly in
Sydney and Melbourne, following the shock results of the Federal election.
“Labor’s loss has eliminated the number
one risk to the property market and this, combined with the high likelihood of
interest rate cuts by the RBA this year and the first home buyers’ scheme, will
support the bottoming of the market by the end of the year and then a gradual
recovery,” RiskWise CEO Doron Peleg said.
He said fears of a Labor win, and
with it its proposed changes to negative gearing and capital gains tax, had a
major impact on buyer sentiment, particularly investors, who saw residential
properties as depreciating assets.
RiskWise’s April Quarterly
Risks & Opportunities Report identified two key factors that would have
a major impact on the market, particularly in Sydney and Melbourne, being the
proposed taxation changes and interest rate cuts by the RBA.
“The number one risk of a Labor
win has been eliminated,” he said.
“What we saw happening was the ALP’s proposed changes have,
rightfully, had a major, and tangible, impact on buyer confidence, which
RiskWise identified in its report, Impact
Analysis: Negative Gearing, CGT and Australia’s Residential Property Market.
Those, jointly with APRA’s credit restrictions and the banks’ scrutiny of loan
applications as a result of the Royal Commission, led to major price
reductions, uncertainty and impacted buyer sentiment, according to the Westpac
Consumer Report, which found house price expectations were extremely low.
“This meant even
before an actual ALP win, the high possibility of these taxation changes had
impacted the property market. The Coalition win has eliminated the uncertainty and
complexity in the market associated with the taxation changes, as well as
significantly mitigated the property downturn, given it can be demonstrated the
price reductions were, in part, due to fears of the proposed taxation changes.
“In addition, with the other key
factor we identified in our Quarterly Risks
& Opportunities Report, that the RBA is extremely likely to undertake
two interest rate cuts by the end of the year, we should expect the market to
bottom by the end of 2019 followed by gradual price increases.
“While the impact
is likely to be lower than the impact of interest rate cuts in a higher
interest rate environment, this will still have a very positive impact on the
market, as rental returns in Sydney and Melbourne are, generally, very
low. Therefore, interest rate cuts will materially reduce the
‘out-of-pocket’ costs for property investors.
cuts will increase dwelling demand, decrease price reductions in weaker
markets, support the recovery in Sydney and Melbourne markets, and increase
prices in areas that enjoy good demand and show resilience.
addition, on May 11, Prime Minister Scott Morrison announced a first home
buyers’ scheme, which will allow those eligible to buy with only a 5 per cent deposit
rather than the standard 20 per cent and help stimulate the market.”
Mr Peleg said while, overall,
there would be major improvement in comparison to the situation in April, there
were still risks associated with the property market.
He said tighter lending standards,
the findings of the Banking Royal Commission, restrictions on foreign
investors, unit oversupply and large falls in dwelling commencements still
all had a material impact on the market.
with continuous price reductions, weak economies and poor population growth
will take longer to recover and will require a more conservative and risk aware
investment strategy,” he said.
“While there has
been a reduction in dwelling commencement, sales of new units are still very
low and, therefore, in some areas it could take a longer period of time for the
stock to be absorbed into the market meaning the risk is still high in many
publish a Special Edition of the updated Risks & Opportunities report, in
the light of the election results, in the next few days.
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