After much trepidation around what a widely predicted Labor 2019 election win might mean for the already softening Australian property market, financial commentators were less prepared for what an unexpected Coalition win would mean for the market. In a dazzling election night twist, the Coalition managed to secure not only a further term in Government, but also a majority win. So, we take a look at what experts have to say about the future of the property market given the Coalition’s election promises, as well as other market factors that have been at play. We’re seeing generally increased confidence in the market, the bottom of the downturn and market recovery, and a chance for first-home buyers to get a slice of the action..
The First Home Deposit Scheme
The First Home Deposit Scheme is the Coalition’s attempt to address housing costs for young people. It starts on January 1 2020 and eligible first home buyers (earning up to $125,000) or couples (with a combined income of up to $200,000) will be eligible for government lending of up to 15 percent of the purchase price of a property, provided they have already saved an initial 5 per cent deposit. What’s the rationale here? Most mortgage lenders currently require a 20 per cent deposit to qualify for a home loan, or they are subject to lenders mortgage insurance, which being in between $10,000 and $20,000, is a cost prohibitive fee in itself for first home buyers. Under this scheme, not only will borrowers will have access to funds for an extra 15% of the purchase price, but they’ll also avoid paying lenders mortgage insurance (LMI) - a significant saving for most new buyers. The scheme will enable first home buyers to get a foot on the property ladder sooner, as the government is effectively serving as guarantor for the loan.
Critics of the initiative say it has the potential to land some buyers in trouble - particularly if house prices continue to fall as negative equity could become an issue. Negative equity occurs when the money you owe on your mortgage is greater than the value of your property. The scheme is also limited to 10,000 borrowers, so experts say it is unlikely to have a significant impact on home ownership rates.
Negative gearing is safe!
Labor’s election campaign included a controversial promise to can negative gearing, meaning those who claim tax deductions for net losses incurred on investment would no longer be able to do so; a huge change to the Australian taxation landscape. This was feared to negatively impact not only investors, but also the market generally if demand for investment suitable properties took a dive following the policy changes. This is no longer a concern for the property market (at least, not for the duration of the Coalition’s immediate term), so market uncertainty surrounding this issue is alleviated.
Property prices, back on the upswing, soon enough?
“It’s pretty clear to us that the bottom [of the market] is just around the corner,” Commonwealth Bank senior economist Gareth Aird said. “We had a 15 per cent [peak-to-trough price forecast] and we’re almost there now.”
With reforms to negative gearing and the capital gains tax off the table, a likely interest rate cut on the horizon and a scheme to encourage first-home buyer activity, Mr Aird said, it was reasonable to think prices would not fall much further, and that the market would begin, slowly but surely, to recover. He expected prices to bottom out late this year, but noted it would not be a sharp recovery due to tighter lending standards. “[It’s likely] the market will bottom out earlier under a Coalition government than Labor, but with [potential] rate cuts on top, you’ll never be able to tell,” he added. Domain economist Trent Wiltshire also shared his thoughts. “Sellers will then respond to buyer interest, there might be a few people who were thinking about selling who have held off [until now],” he said.
Ray White chairman Brian White has a slightly different, even more optimistic opinion. “I’m confident the market will now improve, because of the stronger [market] curiosity exhibited by the community, which has been reflected by increased auction attendances,” Mr White said. “I believe we’ll look back and see this period as the bottom of the market,” he added.
Sources: OpenAgent and Domain