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How these 3 ‘big players’ will influence the property market in 2019
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How these 3 ‘big players’ will influence the property market in 2019

How these 3 ‘big players’ will influence the property market in 2019

by Bianca Dabu | February 11, 2019 | 1 minute read

The recommendations of the banking royal commission, the upcoming general elections and the state of cash rate are considered among the ‘big players’ in the property market in 2019 as their movements are expected to have a great impact across the real estate landscape.

Suburbs
February 11, 2019

Before the end of 2018, the Australian Prudential Regulation Authority (APRA) removed the cap on interest-only lending after two years, followed shortly by the conclusion of the banking commission.

At the same time, the cash rate have recorded the longest period without movement.

This year, the upcoming federal elections have also become a topic of great interest among property experts and investors.

Moving forward into 2019, these elements are expected to greatly influence the conditions of the property markets across Australia.

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Royal commission

The banking royal commission, which was established in 2017 to inquire into and report on misconduct in the banking, superannuation and financial services industry, has had a great impact on the real estate industry, particularly on lending policies, according to former Federal Treasury economist Redom Syed.

Following its conclusion by the end of 2018, Mr Syed believes that the influence of the royal commission will continue across the industry, albeit in different form.

He explained: “I don’t think it’s going to impact lending policies so much going forward mainly because the royal commission wasn’t specifically about lending policies. It didn’t look at serviceability calculators and things like that, but at how decisions are made, the cultures and the broader market.”

“It was trying to work out whether the incentives that are in place is creating a culture that’s poor and, thus, produces poor consumer outcomes.”

In 2019, the recommendations from the royal commission may not impact lending as much as it did, but they are still expected to spur significant market changes.

For instance, the policies across the broking industry and the insurance providers could be examined to ensure positive consumer experience.

“I see the royal commission making head waves. It may impact brokers and other market participants, like the super industry, insurance providers. It will really shake up the market, all with the aim of improving consumer outcomes,” the economist highlighted.

Despite the good intentions, Mr Syed warns investors against ‘unintended consequences’ as the royal commission influence consumer sentiment.

“It might impact sentiment and have other unintended consequences. If they do something to brokers or the financial planners or insurance providers, it may create an unintended flow on impact to customers.”

General elections

Apart from the royal commission, the upcoming general elections are also expected to impact the property market in 2019, particularly with negative gearing emerging as a popular point of legislative discourse.

If elected, the Labor party aims to limit negative gearing to new housing. Further, they also plan to halve the capital gains discount for all assets purchased, thereby reducing the capital gains tax discount for assets that are held longer than 12 months from 50 per cent to 25 per cent.

A number of property bodies have already questioned the policy, concerned about the negative effects that it could have on the property market, but Mr Syed believes that there could be a ‘silver lining’.

While the policy is going to be a ‘structural change in the taxation of housing’, it may lead to a temporary improvement across the housing market, particularly between the time that the regulation is implemented and when significant changes actually occur.

According to Mr Syed: “There’s quite a few hoops to jump before that actually happens, but assuming it does, that should create changes in the market, although there may be a short-term temporary improvement to the market associated with the time gap between when they say they’re going to do it and when it actually gets implemented.”

“They might give investors 12, 15 months to actually make decisions, which could trigger people to jump in earlier. That might have a short-term temporary improvement for particular asset classes.”

“It’s going to be all about finding the opportunities in and among the changes when things change and not just to go, ‘Oh, it’s doom and gloom, everything’s going to be terrible.’ Instead, ask, ‘What can we find out that’s useful?’”

In the United Kingdom, for example, Mr Syed found that while structural tax changes did, in fact, had a negative effect on certain groups, there were still opportunities that smart investors were able to take advantage of.

“There might be a bit more volatility in house prices, at least for a short period of time, which helps create opportunity for investors,” the economist said.

“Nothing happens in a vacuum. If something happens on the one side, something else is going to happen to counter the flow on the other side, at the same time.”

Interest rates

Finally, the movement of interest rates will naturally affect the property market in 2019 as it’s driven by investment activity and the general state of the national economy.

According to Mr Syed, the current market pricing suggests that interest rates may rise at some point in 2019 all the way through early 2020.

However, with auction clearance rates at around 40 per cent and credit continuing to tumble, interest rates could move downwards before eventually hiking up.

“I personally think that housing has a very, very big impact on the economy as a whole, and it also impacts a lot of other sub-sectors. If housing continues to perform relatively poorly, then the economy itself may pull back a little bit, unemployment might trend up and there will be no inflationary pressures.”

“In that light, I would probably go against the grain here and say that the next move could be down and not up, which is a little bit unusual given that the cash rate is already so low,” the economist explained.

Still, with the movement of interest rates heavily dependent on current market data, Mr Syed said that his forecast may not be final as it is and, thus, advised investors to be consistently updated about market movements in order to make the right decisions.

 

Tune in to Redom Syed's episode on The Smart Property Investment Show to find out what investors can expect from the finance sector this 2019.

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