There is an air of concern around the housing market, particularly in Sydney where property values have taken a hit over the last 12 months. There is a lot of media attention citing ‘doom and gloom’ but the reality is Australian’s love property, and they just can’t stay away from it.
Are we seeing a housing market recovery?
Housing finance data released this week from the Australian Bureau of Statistics (ABS) shows an increase in the number of mortgages issues and the value of them. October 2018 figures show there were 52,654 home loans approved, which is an increase of 2.2% on September’s figures. The value of these home loans has increase by 2.6% to $30billion. It’s probably a little early to call it, but as mortgage brokers, we have seen the highest level of pre-approved home loans since we started our business 4 years ago. Just this week, we’ve seen a couple of lenders relax their credit policies to enable borrowers’ access to credit. We believe we’ll see a few more lenders relaxing their policies slightly early next year as they realise their balance sheets have suffered because of tight lending restrictions. Timing is incredibly important when it comes to buying property and securing finance, so talking with your Sydney mortgage broker is the best way to get a read on the market.
Owner-occupied home loans on the increase
Of that $30billion home loan approvals, 66% was for owner-occupied home loans rather than investment loans. There has been an increase of 3.5% from the previous month for owner-occupied home loans, but surprisingly, investors have also recorded an increase of 0.6% despite tight lending criteria.
Looming election making investors nervous
With the Australian Labor Party (ALP) touting their negative gearing reform in preparation for the upcoming election next year, investors are understandably nervous about buying investment properties. Labor has previously proposed to limit negative gearing to just new dwellings and to halve the Capital Gains Tax (CGT) tax discount from the current 50% to 25% in an attempt to level the playing field for first homebuyers.
This type of policy will be detrimental to an already damaged investor market. There have been significant changes over the last year that have discouraged investors from buying and we’ve already started to see an oversupply of properties, particularly Sydney’s western suburbs. Property prices have also dropped, enabling more opportunities for first home buyers to enter the market, in addition to stamp duty concessions.
Investor purchases may increase before election
If Labor wins the election and has its way with CGT reductions, we may well see an increase of investors entering the market prior to the election. If new policy is introduced around reducing the tax discount of CGT from 50% to 25%, it’s likely purchases made before the policy implementation will be exempt from the new policy. And if Labor manages to introduce their negative gearing policy, investments made before this policy introduction will be grandfathered from the impact.
Housing policy overreaction has detrimental consequences
The biggest issue with Labor policies which impact the housing market is they are trying to implement policies to change a property cycle, which will last forever. We are in a property cycle, that means prices go up, prices go down and access to credit changes from day to day. Short term incentives like stamp duty concessions are the way to give first home buyers leverage to enter the market, not changing property policy where the ramifications are detrimental to the whole country and everlasting.
Labor has a misguided view of ‘investors’ and yes, there are definitely property tycoons who leverage these tax benefits, but the majority of investors are mums and dads, and often first home buyers who rent-vest by buying an investment property in another location at a lower price point, yet rent in the city to access higher paying jobs and lifestyle opportunities.