The Australian property market has been in a downturn for a couple of years, although some parts of the country have escaped relatively unscathed. With the Coalition’s surprise election win at our backs, and the Reserve Bank announcing a rate cut, will the forecast change any time soon?
Market overview
Where does the market stand today? As of April 2019, CoreLogic reported that national dwelling values had fallen for the eighteenth consecutive month. Combined capital city values fell by -0.5%, with regional markets recording an -0.3% fall. Over the past year, capital city dwelling values have decreased by -8.4%, with regional markets a little steadier at -2.6% for an overall national decline of -7.2%.
It’s not all doom and gloom, though. The latest results in the capitals are the smallest decline since October 2018, indicating that the downturn may be slowing. In fact, the percentage of decline has been falling since the beginning of the year, leading many experts to predict that the downturn will be over by late 2019.
Buyer sentiment
Certainly, the election result appears to have increased buyer confidence.
It’s no surprise that investors are more likely to add to their portfolio with a Coalition government. Labor took a number of policies to the election that would have materially affected property investors, including halving the Capital Gains Discount from 50% to 25% as well as ending the use of negative gearing for established properties from 2020. With a Labor victory widely anticipated, the market may already have been factoring these effects in and exacerbating price falls.
With both of those off the table – the Coalition has clearly stated that it would not consider implementing either – many experts are predicting that this effect will reverse, the decline will bottom out earlier and more shallowly than originally feared.
Regardless of who won, the fact that the election is behind us is also helping. Markets perform better in conditions of certainty, and may have done so on the back of an ALP victory due to investors buying up before the negative gearing changes came into effect. Either way, it’s likely that we’ll see more people who were thinking of selling take the plunge, and increased buyer confidence.
Regulatory rollbacks
In the wake of last year’s Financial Services Royal Commission, APRA put a host of new restrictions in place for lenders. These included greater financial scrutiny on loan applications and heavy restrictions on interest-only and investor loan products. As a result, it became harder to get a loan and many would-be buyers found themselves unable to do so. This exacerbated the downturn in demand and put further downwards pressure on prices.
A year later, some of those restrictions are easing. This helps first home buyers and upgraders in particular, as these groups can now benefit from better buying conditions.
In addition, APRA has mooted changing the way lenders are required to benchmark risk. Rather than assessing whether borrowers can meet an interest rate rise up to 7%, the new guideline will recommend a benchmark of 2.5% above current rates, potentially lowering it to 6.5% or even lower.
Interest rate cuts
The RBA has signalled that there will be at least one, and up to three, interest rate cuts before the end of 2019. Rates are already at historic lows, and the cuts may bring them below 1%. With banks likely to pass on most, if not all, of the cut, this will help buyer confidence and increase borrowing power. If the cuts work as intended, they will also provide a gentle boost to the overall economy, further improving buyer sentiment.
There’s plenty of good news here, but as always, the property market is subject to complex variables that may affect forecasts. Always consult with a licensed expert before making financial decisions.