I’m wondering what impact a Labor government might have on the market. I’m not the only one…
With Malcolm Turnbull actively campaigning against the Liberals in his old seat in Wentworth, and the coalition looking like it’s on the brink of implosion, I’ve been thinking about what a Labor government might mean for our property markets.
Turns out I’m not the only one – The annual Property Investment Professionals of Australia survey shows that a lot of investors are worried what impact Labor’s negative gearing and GCT reforms will have on the market:
Australian property investors are shrugging off finance issues, concerns about taxation policy changes, and the market slowdown in Sydney and Melbourne with a growing majority believing this year is a better time to invest than last, the 2018 Property Investment Professionals of Australia (PIPA) Property Investor Sentiment Survey has found.
The national survey, which gathered insights from 820 property investors, shows that more than 77% of respondents think now is a good time to invest in property, with 52% looking to purchase a property in the next six to 12 months.
However, more investors than last year (48% in 2018 versus 43% in 2017) say that changes to investor lending policies have impacted their ability to secure finance for an investment property.
Potential changes to negative gearing and Capital Gains Tax policies are also a growing concern, the survey found, with 45% of respondents indicating they would reconsider their future investment plans as a result of proposed changes.
While a majority of investors (64%) believe it’s unfair to charge investors higher interest rates compared to owner occupiers, most (61%) also indicate they will have no problem meeting higher interest rates when their loans switch to principal and interest repayments.
Even though the Sydney and Melbourne market slowdown has been widely reported, most investors appear unperturbed with almost 90% indicating that concerns about price falls in our two biggest capital cities will not slow down their investment plans.
Brisbane remains the hot favourite for investment, according to the survey, with 44% believing it was the capital city with the best investment prospects (up from 43% last year). About 26% picked Melbourne, down from 32% last year, while only 8% chose Sydney as having investment potential.
This all fits with one of the stylisations I have about the market – professional investors are generally well positioned to deal with rises in rates or anything like that. If anything, it’s amateur investors who are just blindly following the advice of their accountant – that’s who we need to worry about.
If you are self-identifying as a ‘professional investor’, then you are probably well covered.
The focus on Brisbane is interesting. Brisbane has been underperforming for a few years now, and I’m not convinced it’s about to dramatically turn all that around. So I’m perhaps not as bullish on Brisbane, but that might be because I’m not as bearish on Melbourne, or even Sydney.
There’s gems to be found wherever you look.
But it does seem clear that negative gearing reform is rearing its head as an issue.
So am I worried?
I would say I am ‘cautiously optimistic’.
I’m optimistic because I don’t see the reforms having a huge impact on the market, in and of themselves. But I’m cautious, because the market is facing a lot of headwinds at the moment, and a lot of them regulatory.
That’s the thing when you’re camel is fully laden. You just don’t know what’s going to be the straw that breaks its back.
I don’t think it will be negative gearing, but I also think Labor would be smart to wait and see what impact recent changes in the credit market have, before it goes and does anything it might regret.
The other thing to remember is that Labor’s proposal is to remove negative gearing on existing homes, but leave it in place for new builds.
That mean we might just simply see a shift in investor demand from existing to new construction.
Stockland CEO Mark Steinert sees the writing on the wall:
The Labor Party’s plan to limit negative gearing tax breaks to new housing would put a rocket under the business of residential developers because demand from investors would surge, Stockland chief executive Mark Steinert says…
“Our business will rip,” he said at the Property Council of Australia’s annual congress in Darwin.
“We’re all about new product. At the end of the day, half our buyers are first-time buyers, and 80 per cent of our buyers are owner-occupiers. If the investors are going to participate in the market like they have in the past, that means they’re all pointing at our product and other developers’ products”…
Good luck to him. He’s probably right.
And when you remember how busted our planning system is, you could see a surge in demand for new builds meet bottle-necked supply… and that means rising prices.
Hard to know how it will balance out, but it could mean that it could even be a net-positive!
I’m not sure. I’ll have to do a bit more thinking about how to balance those equations.
But I think that is how I’m thinking about it. Labor’s negative gearing reforms probably won’t have a huge impact on the market, with a reconstitution of demand price growth away from existing homes to new builds…
… provided Labor doesn’t fluff the timing.