How the federal election impacts the property market

The upcoming federal election on 18 May 2019 is likely to have an impact on Sydney’s property market. We believe this will happen in two key ways.

First, the property market always tends to stutter a little before an election cycle, with buyers and sellers holding off to see what happens. Anecdotally, we’re currently noticing fewer listings, buyers, and sales in the lead up to this contest, just as we anticipated.

Second, the outcome of the federal election is likely to affect both owners and investors as the winning party enacts their election promises and policies.

And, given the two major parties have very different policies on negative gearing, capital gains tax and housing affordability, this election could have a bigger impact on the property market than most.

THE CURRENT STATE OF THE SYDNEY PROPERTY MARKET

Sydney’s auction clearance rates have recently been relatively strong – registering anywhere between 55 and 70 per cent, depending on which outlet is reporting results.

But, while this headline rate may indicate a relatively strong market, scratch below the surface and a different picture emerges.

One reasons the rate is high is simply because there are far fewer properties going under the hammer than there once were. Domain’s figures reveal that an average of 1,066 Sydney properties went to auction each Saturday in 2018. In 2019, that figure has fallen to 601 properties.

Also, prices in Sydney remain flat, falling -0.7% over April for an average annual decline of -10.9%.

Still, even if the market is slow it isn’t all bad news. One upside is that this represents a slowing of the decline, given that prices had fallen by an average of almost 1.1% over the previous three months.

It’s also worth remembering that a number of events – such as school and public holidays – have also tended to have a natural slowing effect on activity in the property market.

However, more than anything, the current lethargy is being driven by both buyers and vendors taking a wait-and-see approach until after the 18 May election.

ELECTION PROMISES: FROM CGT TO NEGATIVE GEARING

After 18 May, we could see very different activity in the Sydney property market, depending on which side wins the election.

If Labor takes office, it has promised to implement changes to the rules around negative gearing and CGT by as soon as New Year’s Day 2020. This includes abolishing negative gearing for investors purchasing existing real estate (new dwellings should still receive the benefits of negative gearing).

It will also halve the CGT discount for individuals when they sell an investment property from 50% to 25%.

Meanwhile, the Coalition has been more reticent about how – if at all – it will make changes to negative gearing and CGT. Its latest budget instead focuses on initiatives that will indirectly impact owners, such as improved infrastructure and more affordable regional housing markets.

WHAT WILL HAPPEN IF THERE IS A CHANGE OF GOVERNMENT?

Because of the proposed changes, a Labor win could make investing in property less appealing and potentially cause an already stuttering market to decline further.

But that is only one possible outcome – and not necessarily the most likely.

After an election, the certainty of knowing who’s in power often brings buyers and sellers back into the market – regardless of who wins. That’s unlikely to be any different this time around.

In fact, given the ALP’s reforms will be “grandfathered” so that existing property investors won’t be impacted, a Labor win may actually see a rush of activity as investors look to get into the market before 1 January 2020.

In the longer-term, as current tax concessions still apply to people purchasing new builds, we may even see a healthier environment for developers and this too could drive property prices up.

Other alternatives, of course, are that Labor doesn’t win or that they win, but can’t then push their property reforms through a hostile Senate. If that happens, we could also see confidence return to the market, especially given we could also be seeing interest rate cuts soon.

These are both best case and worst case scenarios for the Sydney property market but the reality is that even the most informed forecasts about what will happen, remain just that: forecasts.

The bottom line is that there is always a reason not to buy property but, in the long-term, it almost always proves to be a sound investment regardless of any short-term bumps.

And, with less heat in the market now than over the past couple of years, there are plenty of positives for buyers looking to make a move in the Sydney real estate market or expand their investment portfolio.

Contact The Goldman Brothers for advice about buying and selling property in Sydney’s Eastern Suburbs.

Sources/references

https://www.news.com.au/finance/real-estate/brisbane-qld/should-you-wait-until-after-the-easter-holidays-or-should-you-list-now/news-story/9453d933c642b7c9aab508f42b2d18ab
https://www.therealestateconversation.com.au/news/2019/04/23/noosa-home-defies-easter-slowdown-with-567-million-sale/1555982919
https://www.abc.net.au/news/2019-03-10/nsw-election-promise-tracker/10882202
https://www.smh.com.au/politics/federal/negative-gearing-change-to-start-on-january-1-should-labor-win-the-election-20190329-p518rr.html
https://www.abc.net.au/news/2019-01-03/labor-negative-gearing-gfc-housing-downturn/10682884
https://www.realestate.com.au/news/coalition-offers-alternative-to-labor-negative-gearing-reforms-in-2019-federal-budget/
https://www.smartpropertyinvestment.com.au/tax-and-legal/19385-critical-dates-and-details-released-on-labor-s-negative-gearing-cgt-changes