30 May Property Investment post-Election in 2019 and Beyond
What a difference a couple of weeks can make to property headlines in the media. Doom and gloom have quickly been replaced with positive headlines and data heralding the bottom of the cycle for some markets, and the growth phase of others.
Two shots in the arm for the property markets in May were the Federal Election results and APRA announcing the removal of 7%+ assessment rates for borrowers. On top of this there is still talk of a potential for a rate cut from the RBA in June.
Chris Joye wrote in the AFR that national house prices will climb at least 5 to 10 per cent over the 12 months following the final RBA move. “The potency of the RBA’s June cut will be materially amplified both by the Liberal party’s economic agenda and APRA’s recent decision to slash the minimum interest rate banks use when assessing how much they can lend”, Joye said. Analysis by Joye’s Coolabah Capital indicates that APRA’s change will enhance a person’s borrowing capacity by 14 per cent.
With the election behind us, Labor’s proposed property tax reform has been shelved for now. Although there was considerable speculation on the effects of this tax regime, I believe it is ultimately the forces of supply and demand such as finance availability, household formation, and new construction that sets the price of housing. One only has to look at other international markets to see that cycles and opportunity exist, regardless of tax policy.
The good news is that property bought prior to the yet to be decided date will be grandfathered. This means property investors who appreciate the attractive, long-term performance of property, and buy before this date, will have the ability to claim negative gearing and a larger discount to their capital gains tax if they sell at a future date.
We always encourage our client to not just buy an investment property, instead invest in property., There is a difference. There are many pre-packaged investment properties in the latest high-rise or house and land estate. These are usually investor grade ‘stock’. Being more volatile and susceptible to oversupply can lead to higher vacancy rates and less long-term growth. When the market is slow or correcting, these types of properties are the first to be discounted as investors speculate on loss prevention. When the market is hot or booming, these areas quickly attract new supply which saturates the market and devalues the older stock.
Property to avoid post-election for investment:
- High-rise off-the-plan units
- House and Land in large greenfield estates
- Inferior quality ‘investor grade’ property
- Highly concentrated Investor areas and developments
Investing in property means doing your research and buying in established areas with a diverse range of key investment drivers. It means staying away from investor orientated areas, and instead, favouring areas that are in demand from local owner occupiers. When the market is slow or correcting these types of property can be more resilient as owner occupiers will always need a residence to live in and will tend to weather the storm rather than selling out like an investor might. When the market is hot the increased demand and supply constraints will force prices upwards. Ultimately these property types will either hold their ground or appreciate over time.
Property to buy post-election for investment:
- Established suburbs with low supply
- Property attractive to owner occupiers
- Low density areas
Property markets post-election:
No doubt the Sydney and Melbourne markets will be breathing the biggest sigh of relief with the recent election results, reduction of assessment rates and possible rate cuts. Sydney has now contracted 16%, and Melbourne 10%, since their peaks. Whilst these markets may still take some time to fully bottom out and begin their next cycle, the new environment will definitely be more favourable for stability.
There may be a few other markets, such as Brisbane and Canberra that will be out of the gates quicker however, with these markets exhibiting strong key investment drivers pre-election such as economic strength, population growth, affordability and increased infrastructure spending. Though they are better positioned for more immediate growth, property selection is still critical for long-term results, such as dissecting the performance of houses and units.
The resources driven States and Territories of WA and NT are still bottoming out and coping with lower employment, higher vacancy rates and a hangover from the mining boom.
Hobart and Tasmania will come off the boil, with recent exponential price rises flattening out to more lacklustre long-term averages compared to the mainland capitals.
Strategic property research and selection are always crucial for property investors. The savvy investor will buy in areas where there are multiple long-term growth drivers such as employment growth, population growth or major infrastructure changes. Properties that have a strong owner-occupier appeal, a scarcity factor and are not in high-density areas will outperform new high-rise developments and large greenfield house and land estates.
Looking to discover more about the property market without the sensational media headlines?
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This article is provided for general information only and does not constitute personal advice, as it does not take into consideration your personal circumstances. Please consult a licensed tax or financial advisor before making any decision to invest. Past performance is not a reliable indicator of future performance.