The election results are in and Scott Morrison is still our Prime Minister. REB considers what a re-elected Coalition government means for the real estate industry.
First home buyers as a growth market
Scott Morrison’s late 5 per cent mortgage deposit policy (matched quickly by Labor) along with Labor’s early plans to curb negative gearing and capital gains tax concessions, have been the key property market battlegrounds in the election campaign.
With Mr Morrison’s win the impact of these skirmishes will be felt most keenly by investors, who are likely to have dodged a negative gearing bullet according to some experts, and first home buyers, 10,000 of whom are likely to benefit from the subsidised deposit policy.
When he announced the 5 per cent mortgage deposit policy at the tail end of the campaign Mr Morrison said it was to help young people to break into the property market.
“We need to go further,” he said at the Coalition’s campaign launch a little over a week ago.
“It’s hard to save for a deposit. Especially with the banks pulling back and larger deposits of 20 per cent now being standard. It is not getting easier. We want to help make the dreams of first homebuyers a reality.”
Could there be downsides for young investors?
CEO of Starr Partners, Douglas Driscoll, said that reducing the deposit FHBs need from 20 per cent to 5 per cent could see them drowning in debt.
“APRA has been advocating more prudence and has long cautioned against low deposits, and yet, this policy seems to directly contradict that advice,” said Mr Douglas.
“This is a short-term gain that might lead to some long-term pain. Although it makes it easier to buy now, it also potentially burdens them with larger monthly repayments and the prospect of having to pay thousands more in interest to the bank over the life cycle of a loan.”
Mr Douglas said we want the younger generations to have a grasp on the property ladder, but don’t want to see them drowning in debt.
Negative gearing to stay, markets tipped to rally
Going into the election Scott Morrison had regularly attacked Labor's proposed changes to negative gearing and capital gains tax.
When Labor accused Mr Morrison of tracking to spend “billions of dollars on loopholes for wealthy investors to buy their sixth or seventh house”, the Prime Minister hit back immediately, rubbishing Mr Shorten’s claim using police officers as an example of those who may be affected.
"I do know that one in five police officers have an investment property," he said during an appearance on Sydney radio.
"And they don't have five and six and seven and all this rubbish Labor goes on with. They have one, and this is what they're investing in for their future."
Research by specialist residential property investment research house, SQM Research, suggests that had Labor won the election and implemented the tax changes they could have created a series economic shocks across the property market.
“Housing construction, already in a slump, would likely fall further due to the lack of investor demand. This would set up a shortage of housing come later 2020, based on current strong population growth rates,” managing director Louis Christopher said.
“Such a tax change during a housing downturn is, in our opinion, a risky move for the economy, and so we encourage discussion of perhaps a phase-in period for such legislation that would reduce the economic shock that this tax change could create.”
LJ Hooker’s head of research, Mathew Tiller, said the re-election of the Coalition government will increase confidence.
“The stability of a familiar government, and an expected interest rate cut in the coming months, will boost confidence in the property market and encourage vendors and buyers to reengage,” he said.
“Australian’s have been patiently waiting to see the outcome of the May 18 federal election before making a decision to act.”