When the wind changes it can change quickly, and that is now true of the Australian property market, that has quickly moved from positive to negative sentiment. In fact, it is the first time ever that the negative sentiment has been greater than the positive according to our Australian Property Investor Magazine Market Sentiment Survey.
Before this years Federal Budget, the market in all States of Australia was growing positively, however the changes announced to Capital Gains Tax and Negative Gearing have spooked the market and created the largest ever shift in sentiment and procrastination that I have witnessed in my 41 year career dating back to when Capital Gains Tax was first introduced in 1985.
It isn’t so much the actual changes, as in fact the swapping of the old 50% discount with inflation tax free is actually similar in reality (property growth averages 6-8% and inflation 3-4% which is equivalent of a 50% discount!), it is the confusion over the rushed legislation and anger over the blatant broken promise and false narratives the government has been pushing.
Having watched the original changes from 1985 spook the market and push rents up, it is no surprise to see the same thing occurring now. The arrogance Governments refusal to listen to alternative positions in the Senate Review was perhaps the most disappointing moment in these changes. There was 679 submissions on these important tax changes yet the Government rushed through the review in just 2 days then chose to ignore all and do a deal with the Greens to pass the legislation despite real concerns.
This has proven to be a poor strategy, with the market softening. Some will say this was the desired result in order to make property more affordable, however the real issue is we are now just experiencing a panic procrastination and the fundamental drivers of growth and affordability are being ignored once more.
As such I feel we will have a short period of market stagnation from lack of confidence and deferred buy or sell decisions. No buyer would want to buy today if they believe the market will be cheaper tomorrow, and no seller would rationally sell for less than they think their property is worth if they have faith in the future of the market.
This pause will naturally cause a temporary softening of the price points, but it does not deal with the real issues of lack of supply, increasing demand and ever rising cost of construction and uplifts of State Government Stamp Duty & GST on the property sector.
I genuinely believe we are in a temporary period of opportunity so if you are a buyer, now may well be the time to find something and if you were considering selling, consider delaying the sale for a few months or a year for the reality of the market forces to resurface.
I discuss all of these issues at length in my recent seminar “The Australian Property Market – Crisis or Opportunity” and recommend you take the time to watch it to gain some important facts of the current situation.
There is no doubt we are in a crisis of confidence at the moment, hence prices are lowering on limited activity. We discuss the real crisis of supply and cost which is not being addressed.
Regardless of your position on this, there are some key points to understand, including:
- You can not fix housing affordability unless you can build more affordable homes,
- If construction costs keep rising then it is impossible to build affordable homes,
- You can’t make homes affordable if the most significant cost of Stamp Duty (5%) and GST (10%) remain on newly constructed houses and apartments. This is a disgraceful “double dip” of revenue by State Governments across Australia.
- To keep a balanced property market you need to construct more homes than demand requires.
- You can not meet the needs of the greater rental market (which in Australia is approximately 30% of the housing stock) without supporting and encouraging investor activity. Both political parties have been discouraging property investment over the last 14 years which is a major factor in the record low investor participation and national vacancy rates.
- You should not make significant adverse changes to policy at a time when there is a lack of ongoing supply and record vacancy pushing rents up.
I have made many formal submissions on housing affordability and property taxation over my career, so feel I am very subjective and informed in this space, so I can share my disappointment of the current changes, not because of the changes themselves, but the worry and confidence erosion they have caused and lack of real action on the issues that would create improvement.
Over my career, I have always focused on the one clear fact that you should buy and pay off your family home as soon as you can, and SMATS’s greatest contribution has been how we have helped thousands of clients achieve this.
We also have helped many thousands buy property to rent out, as this is equally important in providing critical accommodation for the significant population that chooses to rent (either willingly or reluctantly).
It is not stated enough, that property ownership is a mission that can only be achieved through sacrifice and risk and takes bravery and dedication. Very few property buyers find it financially rewarding straight away and continue to devote funds in the hope of a future growth in value. Australia has been able to provide that consistent return promise due to a steadily increasing affluent population and an inability to quickly bring on significant supply of housing to meet the demands of the community.
Nothing in the current Government policies, changes or actions will change this, so I remain long term confident in the market, even if I have lost all faith in all political parties to understand and improve the policy settings in a way that helps create more affordable housing supply or indeed an appropriately costed social housing network (which is also desperately needed).
That alone will ensure Australian property will continue to grow at a reasonable pace over the long term.
Markets have soft periods, NSW, Queensland, South Australia and Western Australia had little to no growth for many years until a recent surges (driven by strong demand an poor supply), Victoria has been soft growth over the past 5 years largely due to State Government landlord cost & regulation escalation so I find it amusing that we forget that so quickly.
I have always reminded people property market have cycles – Slow, Medium & Fast. All that has happened at this moment is a massive artificial hand brake as a result of Government intervention and market reaction. The market sentiment is a powerful force, so no one know how long it may remain in negative territory or what may be the trigger to move back into a more positive mood (perhaps the Government admitting a mistake and reversing it as they had to in 1987) but we do know that if the fundamentals don’t improve, that when the return in confidence returns the resultant uplift in process in inevitable.
If you are looking to take advantage of the prices softening, I would think that will be an astute decision, but just remember to buy quality and liveability. That will protect and reward you over the long term, just as it has for millions of property owners over the last 40 years.
