With the federal election making way for a Liberal win, property investors saw proposals to negative gearing taken out of the equation for the next three years. So how have property investors reacted, and what’s to come?
Now that Labor’s negative gearing and capital gains tax proposals are now off the table, property investors will be able to continue investing for next three years as they have been for the last three years, according to Steve Waters, director of Right Property Group.
The sense of stability is one thing that Mr Waters predicted will be around for the Liberal government’s next term in power.
“Investors, at the end of the day, we’re not looking for peaks and troughs, we really do want a stable market,” Mr Waters said.
“A stable market is everything to do with confidence within the market and, of course, the economy as well, and if you look at what the Labor government was trying to propose was really killing the aspirations of not just investors but most Australians as well.
“The confidence in the market is essential, and we have that now, so if you combine that with perhaps the potential APRA changes that have been talked about, what we’re seeing on the ground is just much more momentum.”
Using an example from his buyer’s agency, he cited a recent visit to his agents in Brisbane, where they said their phones have not stopped ringing since Monday, while two to three weeks ago, market conditions were “dead flat” and there was a lack of confidence.
“Those areas which were fundamentally correct and there weren’t degrees of oversupply and all the good stuff, they’ve just seen that since the election, it’s just been such a massive uptick in the amount of enquiries they’ve had… not just from buyers, but also from sellers.”
While conditions are positive at the moment especially in conjunction with APRA’s decision to open up lending, Mr Waters believed the current boost in confidence would not be sustainable.
“There are certain sectors of the market that will react very positively, and I think it’ll be the areas that the investors have always been in, but they’ve just been holding off to see what the election was going to do, because the fundamentals are there, they’re correct,” he said.
The long-term prospects of the government’s First Home Loan Deposit Scheme are also in doubts, as Mr Waters claimed it could potentially have the opposite intended impact on the market.
“It potentially might artificially inflate certain areas, and as the medium term plays out, depending on what the economy looks like then, it’s got to be very careful,” he said.
“It’s first home owner leveraging [themselves] to 100 per cent to buy the property and not account for if the economy starts to pick up momentum, then interest rates will go up and it leaves you in a position that you potentially can’t afford.
“I think there will be those artificial spikes in the market around the first home areas, and that’ll probably be around house and land packages and the like, because, let’s be real: if you talk about Sydney as an example, your first home owner properties are somewhere between that $600,000 and $800,000 price bracket, but that’s a hell of a lot of money.”
Between the election result and the APRA changes, investors may be thinking that the last week has been one of the best in recent years, but Mr Waters said it could just as well be the worst time for another group of investors.
“They’ll be a degree of people that are, once again, jubilant about the government win, the APRA changes, the potential interest rate cuts, but let’s not forget that with the APRA scenario that, just because they reduce the buffering or the threshold, they’re still forensically auditing your bank accounts,” he said.
“Whilst the calculations might be lower to get the loan through… the whole responsible lending scenario is still very tight and you still need to prove that you’re diligent with your spending habits. So, there is now another part to that story which nobody seems to have talked about it, but for those who can get money, I think will be very, very good.”
Another factor that could be funneling into investors having a bad time, Mr Waters said, is the expiry of interest-only loans for those who are unable to obtain another interest-only loan.
“That may hurt a degree of the housing stock or the owners who own it out there, because they can’t get back into P&I, so that’ll put pressure on the household budgets.”
The last factor contributing to underlying negativity is a bulk of off-the-plan properties under constructions, and Mr Waters is seeing these kinds of properties being valued up to 20 to 30 per cent under contract prices, as well as banks reducing their loan-to-value rations on these properties.
“They’ll still be under value off the contract price, and they’ve still got to get a loan and they’ve still got to chip in a hell of a lot of money to settle the property on a loan-to-value ratio,” Mr Waters said.
All of the positivity in the market, he said, is not going to help people unable to get loans, those who do not qualify for another interest-only loan or are involved with off-the-plan property.
“There’s a lot of underlying issues [in the property market], and there’s a lot of hurdles that we as an investor still need to deal with, but that makes for an interesting market,” he said.
“As we’ve always said, if you keep liquid, if your assets are liquid… well then you’ve got the flexibility, the more of what the market throws at you, but if you haven’t got the liquidity in your assets, you potentially could need to make some hard decisions.”