Politics and property prices – Vanessa Jones

Property price reductions accelerated over the last quarter following the day of the Liberal leadership spill of Malcolm Turnbull by Scott Morrison.  There will be more turmoil ahead if Labor win the next Federal election.  Vanessa Jones talks about what is happening.
Kevin:   Well, they say that one day in politics is a pretty long day, and the same could apply to real estate. We’re seeing the possibility of a change in leadership at a federal level, and the impact that it may or may not be having on the property market, with threatened changes to negative gearing if ALP do, in fact, win power.
Kevin:   Interesting to read a blog article by RiskWise Property Research recently, saying that price reductions accelerated over the last quarter, following the day of the liberal leadership spill of Malcolm Turnbull by Scott Morrison. That was back on August 24, and they’re predicting more turmoil in the property market if, in fact, the ALP wins government.
Kevin:   Talking to me now about this, from RiskWise, we welcome in to the show, Vanessa Jones.
Kevin:   Vanessa, thanks very much for your time.
Vanessa:   Oh, hi Kevin. Thanks very much for having me.
Kevin:   So what is your research saying about the likelihood? And just give me a bit of an update on what you’re seeing with price changes, and how you’re measuring those since that spill.
Vanessa:   Right, so basically, since August 24, the day of the leadership spill, that actually gave the ALP a probability of 80% chance of winning the next federal election, which will be held on or before May 18 next year, I believe.
Vanessa:   Basically, Labour have proposed to make changes to negative gearing to limit it to new houses only, and also to discount the capital gains tax from 50% to 25%. So they’re significant changes. What we’ve seen since the day of the leadership spill is a dramatic drop in prices. Price reductions that have actually been accelerating, and also since the Wentworth by-election auction results which were already low have been even lower.
Vanessa:   I don’t know if you’re aware, but last week the preliminary auction result for Sydney was 47.7%, and that was the worst in 10 years, and Melbourne’s very low as well at 50.5%.
Kevin:   Yeah, I would think it’s drawing a long bow though, to put it all down to the threat that maybe ALP might get in. Prices are really determined a lot by consumer confidence, I guess, but also the availability of stock. So we’re seeing fewer listings come on the market as well, so it’s not only hesitancy from a buyer point of view, but also the seller.
Vanessa:   Yeah, that’s true. Also, there have been price reductions already, due to title-lending restrictions, but this isn’t just coming from us. It’s coming from, for example, AMP Capital’s figures. They initially expected price falls of 15% in Sydney and Melbourne, spread out to 2020, which is about 5% per annum. They’ve revised that, partly due to the title-lending restrictions, but also due to fears of low capital growth due to possible changes in negative gearing. They’ve revised that to 20%, so they’ve added another 5% on to that. And Australia-wide, they previously expected a 5% drop, and now they’re saying about 10% up to 2020.
Vanessa:   So Westpac have also come out in their consumer sentiment index, showing that consumer confidence in the residential property market has continued to decelerate, so it’s fallen 5.7% in the last 2 months.
Kevin:   That’s the median price, which, of course, is only a reflection of where people are buying. Dr. Andrew Wilson from My Housing Market has actually predicted that the auction method is definitely under threat, with fewer auctions being declared, and even a fall, as you’ve indicated, in clearance rates.
Kevin:   What’s your feeling about the auction method? Is it under threat, do you think?
Vanessa:   I don’t really know. I don’t really have the facts and figures on that. The clearance rates have dropped dramatically in the last few months.
Kevin:   How much of that do you think you can put down to a decline in sentiment from investors? Do you think they’re a bit concerned about what might happen?
Vanessa:   Oh definitely. Yeah. It’s definitely impacting the market. If you look at … if you take an investor now, who’s got all the tax benefits, even the … because it’s going to create two markets. So you’re going to have the primary market and the secondary market. While the negative gearing for new houses will remain, if that person sells that house to the next person to the secondary market, the investor isn’t going to receive any of those tax benefits, so the average hold period of about 10 years, who’s going to want to buy that property in 10 years if they’re not going to get any of the tax benefits?
Kevin:   The other point to that of course is that if you are investing for negative gearing then you probably have the wrong investment sentiment. Investors don’t necessarily invest for negative gearing, it’s a benefit of it. It’s an end result, it’s not a strategy, so I would challenge the thought that it’s going to stop investors from buying property, simply because they can’t negatively gear.
Vanessa:   Yeah, sure, sure. I’m not arguing, but our consumer sentiment’s definitely down.
Kevin:   Certainly, I agree with you that consumer sentiment is a big driver of the market, and that certainly seems to be under threat, so it will be interesting to see what happens if the ALP do win.
Kevin:   Vanessa, thanks very much for your time.
Vanessa:   Thanks very much, Kevin.

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