REA Report: The Uncertainty that the Election Brings; Negative Gearing to Cause a Disturbance

Property markets go on a standstill because of elections, according to realestate.com.au in its April 2019 Property Outlook report. Plus, the number of new listings drop and buyers begin a waiting game.

The report added that the May federal elections is especially significant for property because ALP has identified major changes to negative gearings and capital gains tax concessions.

The biggest impact, according to chief economist at realestate.com.au Nerida Conisbee, is the change that limits negative gearing to new properties only stating 1 January 2020. She added forecasts that prices will decline and rents will increase because of that modelling by both sides of government, and the independent consultants.

Australia has become almost fully dependent on “mum and dad investors” to make rental housing available in the country, which is not what is done in other parts of the world.

Individual investors rely on tax concessions to make owning a low-yielding property sustainable. Without another option to tackle the decline in investor activity, rent increases could pose a challenge, especially in areas already experiencing rent-related problems like Hobart.

Another issue is that, in regional locations with a lack of demand for new housing, a decline in rental homes supply would worsen.

And in big Australia cities, tenants may be forced to move to inner-city apartments and outer suburbs with plenty of supply. This would eliminate the middle for tenants which would become the territory exclusively for owner-occupiers.

 

Deadlock

According to Conisbee, a win for the Liberal would stabilize the housing markets. It would re-energise buyer and seller activity, and rents would continue to increase along with the market.

Meanwhile, a win by ALP would make declines continue and delay stability by at least 12 months. The increase in rent would be exceed market increases.

Ultimately, the move to investor incentives would benefit first home buyers and would have little to no impact for most home buyers because most of them bought before the brisk rise in prices.

Declining prices do have a major effect on sentiment, trouble for general consumer sentiment and spending. However, two “bigger” issues are seen.

First, the supply pipeline is dropping and the flow-on economic growth could be critical. Second, rents rising. Tenant with no gain from capital growth in housing are normally younger, in the lower income bracket and most probably experiencing housing stress, which means they are affected by the even the tiniest rent increase.

Conisbee said that initiatives to attract more institutional investors to rental housing through adjustments in the managed investment trust structure will not immediately happen and many not be compensate for a decline in investment by the usual suppliers.

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