AUSTRALIA’S PROPERTY MARKET HAS THE RIGHT CATALYSTS FOR A REBOUND:

Australian interest rates have fallen to a record low of 1.25 per cent, and surprise re-election of business friendly government is a massive boost to the property market

Property analysts point to the results of a land auction on June 8 where 62 per cent of properties were sold as an indicator that the property market was turning around. Single detached houses in inner Sydney, Australia are framed by the Sydney Harbour Bridge. Photo: EPA

Record low interest rates and the re-election of a business friendly government will provide a boost to a slumping Australian property market, according to market observers.

This month the Reserve Bank of Australia embarked on its first rate cut in three years, slashing the cash rate to a historic low of 1.25 per cent. The surprise re-election of the Liberal/National Coalition, which means a retention of the current investor-friendly policy on capital gains tax and negative gearing, is also injecting renewed optimism into the property market.

“There is greater confidence among buyers, particularly investors who were concerned about the impact of the opposition’s policy for the partial removal of negative gearing and reduction in capital gains tax discount,” said Sarah Harding, partner and head of residential for Australia at Knight Frank.

She said that the easing of lending restrictions imposed by the Australian Prudential Regulation Authority, the financial services regulator, and lower interest rates will provide a stimulus to the residential property market, encouraging both buyers and sellers to become more active.

The Labor Party, which was tipped to win the election, had planned to the raise capital-gains tax and reform negative gearing, which would have led to higher rents as it would have eliminated offsets for a property owner’s losses through tax incentives.

The prospect of a Labor Party victory had been partially blamed for the sluggish Australian property market, along with other property cooling measures already in place.

Michael Clarke, a director at Sydney-based Clarke and Humel, said that although prices in Australia had declined by 14.7 per cent since peaking in 2017 the market was turning around. He pointed to the results of an auction on June 8 where some 62 per cent of properties were sold, a big improvement from lows of around 40 per cent previously.

Average home prices in Australia have fallen by 14.7 per cent since peaking in 2017. Residential housing in Sydney's inner east on July 26, 2018. Photo: EPA

“Unequivocally, the Liberal/National government retaining power is a massive boon for the property market. Indeed, some of the decline in recent property prices was directly attributed to the high chance of an anti-property opposition forming government and bringing in substantial changes to negative gearing and capital gains taxes which are incredibly important to the property market in general,” Clarke said. “This government is definitely more positively aligned with real estate and investors in general.”

With an improving investment environment, analysts also believe that interest from Chinese buyers would continue to pick up. According to Carrie Law, CEO of property portal Juwai.com, Chinese demand for Australian property had bottomed out in 2017. It picked up last year, rising 54 per cent in the last quarter of 2018, and another 40 per cent in the first quarter of the year.

“The year-on-year gains are not so much a demonstration of the strength of current demand as they are a demonstration of the extreme low levels of demand that prevailed a year ago,” she said, adding that when the overhang of excess inventory is absorbed and lower prices entice buyers back into the market, Chinese buyer sentiment will return. Chinese buyers are likely to be interested in investing in the climbing market,” Law said.

Jock Langley, an agent at Abercromby’s Real Estate in Melbourne, said that the country is a great place to invest in. “The low [Australian] dollar, stable democratic government, and ease of lifestyle and safety and security are the key draw cards as well as [quality] higher education,” he said.

Source: SCMP, Published on June 18, 2019