The Coalition victory in Saturday’s federal election came as a surprise to much of the country, defying opinion polls, media predictions and anticipatory changes in the property market. In the wake of the federal election results, we spoke to Brad Teal, Founder & Director of Brad Teal Real Estate about what the next three years under Morrison’s government might hold for property in Melbourne.
Stronger confidence for Melbourne property buyers and sellers
“I think there will be much stronger confidence in the community around peoples’ personal fortunes going forward,” predicts Brad. “The prospect of changes to negative gearing and capital gains, and the ‘retirement tax’, all had an impact on peoples’ dealings in their financial planning for retirement. With the Coalition returning for a third term, the landscape for all of those things is now known.”
Brad refers to the proposed taxation changes that the Federal Labor Opposition announced in 2016, which have since had ripple effects throughout the property market, including a premature “pricing in” of property value decline. With uncertainty around how future legislation would impact investments, market confidence from consumers and banks alike declined in the lead-up to the election and Brad suggests we’re already starting to see a positive change.
“On Tuesday, the Australian Prudential Regulation Authority (APRA) proposed a reduction in the interest rate test, which will free up money as people are more likely to pass the test with a lower threshold of interest in the future,” explains Brad. “There’s been such a long period of low volume of sales in the market and limited availability of stock, that there may well be now some impetus for a pick up in the momentum of the property market.”
The Coalition victory promises greater certainty in the market.
It’s about certainty, not prices
Given the suggested effect of Labor’s proposed changes on the market, we asked Brad if he thought we may now see prices turn around.
“Where we are now, I believe we’ve pretty much reached the bottom,” Brad says. “That doesn’t mean prices will rise, but I think we’re looking at a better banking environment and a lot more optimism ahead. What we need is stability of prices,” Brad says. “We need stability. We’re looking for a consistent pattern of knowing what you’re in for – that if you were to buy a house for $900,000, it wouldn’t be worth any less than that when you try to sell or leverage its equity.”
Here in Victoria, businesses and households have had six months of great uncertainty and stagnation. From the state election right in the heart of spring, the Christmas period, an extended Easter-ANZAC break and now the federal election, there’s been a lot for the community and businesses to absorb. Brad says, “Now, we can get on with it“.
“It” being getting a loan, buying a car, renovating your home – whatever purchases lie ahead in your own life. With an improving banking environment, and stablising property prices, investors and owner-occupiers alike can move on to get the finance they need and make decisions with conviction.
With greater certainty in the market, Melbourne property buyers and sellers can get down to business.
First home buyers get it easier – but is it worth the risk?
Shortly ahead of the federal election, Prime Minister Scott Morrison announced a First Home Loan Deposit Scheme, enabling eligible first-time home buyers to access the market with a deposit of only five per cent.
Alongside leading economists, Brad is cautious about the Scheme. “I think the timing around the introduction of the Scheme is critical.” Brad says. “It feels a bit like policy on the run, and the Opposition Leader coming back with the same promise almost immediately reinforces that. There needs to be more thought on several factors including price limits and location”
Whilst popular with people on the cusp of buying their first home, the Scheme has been criticised by a number of economists, including Grattan Institute’s Brendan Coates, who claims the scheme wouldn’t guarantee a first home buyer’s entry into the market, based on the high serviceability requirements to repay such a large loan. Meanwhile, JP Morgan chief economist Sally Auld stresses that introducing this policy before the market fully stabilises increases the risk that first home buyers may end up owing more than their property is worth.
Stability will breed optimism
Nonetheless, there is a lot to be optimistic about now that the federal election is over. Talk of policies which add stimulus to the property market, alongside strong RBA signals of an imminent interest rate cut and indications that APRA will lower its serviceability guidance, making banks open for business again, all augur well for a positive trajectory for the property market in the second half of 2019.
For further updates on the Victorian property market, as well as tips for buying or selling your next home, stay tuned to the Brad Teal media room.