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Treasury: Negative Gearing Reforms Will Have ‘Little to No Effect’ on House Prices

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Treasury Negative Gearing Reforms Will Have ‘Little to No Effect’ House Prices

Federal Treasury has delivered a serious rebuke to the Coalition for exaggerating the impact of Labor’s negative gearing and capital gains changes.

In emails released under freedom of information, acting treasurer Kelly O’Dwyer requested the department fact check the Coalition’s claims that Labor’s policies would cause house prices to fall.

In response, Treasury issued a correction: “The [s]tatement is not consistent with our advice.”

“We did not say that the proposed policies ‘will’ reduce house prices,” the email reads.

“We said that they ‘could’ put downward pressure on house prices in the short-term depending on what else was going on in the market at the time.

“But in the long-term they were unlikely to have much impact.”

Labor has jumped on the release, with shadow treasurer Chris Bowen saying that the government had been “caught red-handed” misrepresenting Treasury’s advice.

For his part, treasurer Josh Frydenberg denied that the government was misrepresenting Treasury, pointing to the Financial Review’s take on the release that changes “could” put downward pressure on house prices in the short term.

Frydenberg quoted building industry group the Masters Builders Association figures.

“If Labor’s policy is in place you’ll see 32,000 fewer jobs and 42,000 fewer homes being built.”

Treasury Negative Gearing Reforms Will Have ‘Little to No Effect’ on House Prices

House prices hit spending

It has been a difficult week in economic policy, with GDP figures released on Wednesday revealing that the economy has slowed significantly, entering a “per capita recession” for the first time in 13 years.

Retail trade figures for the March quarter were also sluggish, with falling house prices impacting wealth and spending.

RBA governor Philip Lowe highlighted the link between the two at the AFR annual business summit on Wednesday.

“The evidence is that a tightening in credit supply has contributed to the slowdown in credit growth,” Lowe said.

“The main story, though, is one of reduced demand for credit, rather than reduced supply.

“When housing prices are falling, investors are less likely to enter the market and to borrow. So too are owner-occupiers for a while.”

 

Source: theurbandeveloper.com

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Opinion

What the federal election result means for the property market

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What the federal election result means for the property market

A shorter, shallower property price downturn could be on the cards on the back of the Coalition’s victory at the polls, experts say.

But the long-term prospects for first-home buyers are less certain, with changes to investor tax concessions off the table for the foreseeable future.

Following months of uncertainty about the impact of those tax changes, which had led to greater wariness in the cooling market, experts are becoming slightly more bullish, revising their views on property prices, market activity and first-home buyers.

Property prices

“It’s pretty clear to us that the bottom [of the market] is just around the corner,” Commonwealth Bank senior economist Gareth Aird said. “We had a 15 per cent [peak-to-trough price forecast] and we’re almost there now.”

With reforms to negative gearing and the capital gains tax off the table, a likely interest rate cut on the horizon and a scheme to encourage first-home buyer activity, Mr Aird said, it was reasonable to think prices would not fall much further.

He expected prices to bottom out late this year, but noted it would not be a sharp recovery due to tighter lending standards.

“[It’s likely] the market will bottom out earlier under a Coalition government then Labor, but with [potential] rate cuts on top, you’ll never be able to tell,” he added.

AMP Capital chief economist Shane Oliver and Domain economist Trent Wiltshire both also expected the Coalition’s victory, combined with expected rate cuts,  would see the downturn bottom out earlier.

Dr Oliver, who has been predicting a peak-to-trough decline of 25 per cent for Sydney and Melbourne, said price declines were likely to be closer to 20 per cent now.

“Some of threats to property are starting to abate,” Dr Oliver said. “Affordability has improved … and the uncertainty about negative gearing and the capital gains tax has been removed. Tightening of credit conditions won’t get much worse, and at the same time we haven’t seen the panic-selling.

“The fact support is on the way for first-home buyers … along with RBA interest rate cuts, means the market could end up bottoming sooner.”

With a Labor government quite widely anticipated, Mr Wiltshire said, changes to negative gearing — and the potential price falls it could bring — had already been partly priced into the market. 

“This effect will be unwound, so the peak-to-trough price falls will now be probably smaller than thought prior to the election,” Mr Wiltshire said. 

“It’s more likely that prices will bottom out in 2019, [earlier] than if Labor had won,” he added. “But prices still probably have a bit further to fall and the market remains pretty weak.”

Market activity

Regardless of the outcome, Mr Wiltshire said market activity was always likely to pick up post-election as buyers and sellers would have more certainty on housing policy.

“If Labor [had] won, we might have seen a bigger spike in market activity in 2019 as investors would have tried to buy before the negative gearing change, but then there might have been a weaker 2020,” he said.

He is now expecting a more gradual pick-up in prices, with both first-home buyers and investors to drive market activity on the back of the Coalition’s policies.

“Sellers will then respond to buyer interest, there might be a few people who were thinking about selling who have held off [until now],” Mr Wiltshire added.

What the federal election result means for the property market 2

Ray White chairman Brian White said buyers and sellers would be relieved to know where they stood now the election was over.

“[In the lead-up] people were saying ‘let’s sit on our hands and just wait and see what’s happens’,” Mr White said. “That waiting is finished and I think there’s a big chance that confidence will get a nice boost, as we’ve seen already in the stock markets.”

While he is not expecting to see a rush to market, he believes there will be a boost from buyers and sellers who had been waiting on the sidelines.

“I’m confident the market will now improve, because of the stronger [market] curiosity exhibited by the community, which has been reflected by increased auction attendances,” Mr White said.

“People are all wanting to know what’s coming … I believe we’ll look back and sees this period as the bottom of the market.”

McGrath chief executive Geoff Lucas agreed the government’s win would inject confidence and clarity back into the market.

“Conversely, if Labor [had] won and the negative gearing and capital gains tax reforms had passed, it is possible that the current downturn would have been exacerbated,” Mr Lucas said. “At the least, it would have created confusion, concern and uncertainty. “

What the federal election result means for the property market 3

First-home buyers

Labor’s proposed changes to negative gearing and the capital gains tax discount would have removed concessions for investors, creating a more level playing field for first-home buyers.

The changes aimed at improving housing affordability will not go ahead under the Morrison government. Instead, first-home buyers will have access to a loan scheme — also backed by Labor — enabling them to purchase property with a 5 per cent deposit. 

Dr Oliver expects the policy will bring forward some first-home buyer activity, but that its impact will be limited as it is capped at 10,000 loans a year and requires a higher debt-to-income ratio.

He expects the government will morph the scheme into a grant, which could provide more of a stimulus to the lower end of the market.

While he would not advocate for grants in a booming market as they could further drive up prices, Dr Oliver said it could help in a cooling market when there was concern about the wider impact a downturn could have on the economy.

Mr Wiltshire expected the scheme would have a small but not-insignificant impact and encourage some first-home buyers to get into the market earlier.

However, he noted a Coalition government also meant first-home buyers would not benefit from improved affordability off the back of cuts to negative gearing and the capital gains tax discount.

 

Source: www.domain.com.au

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To buy or not to buy: Clues hidden in new housing price data

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To buy or not to buy Clues hidden in new housing price data

It would be easy to get excited and think now is the right time to jump into the housing market. This is why you need to be careful.

You might have heard rumours that the housing market is about to take off, that the price falls are finally over and that the time to buy is now.

It would be easy to get excited, grab your deposit and finally dive in. But is it still too soon? Be careful.

Because there are some tentative signs that in Sydney and Melbourne, house price falls are back. Earlier this year the fall in house prices was easing. But the newest data shows price falls seem to have intensified again at the end of April/start of May.

The next chart uses a daily home value index created by CoreLogic. As you can see, the speed at which house values are falling has varied. At one point values in Sydney were falling so fast that if it was maintained for a year, values would be down by 25 per cent. At other times they were falling at a rate equivalent to annual falls of just a few per cent.

From New Year’s Day to near the end of April, the rate of falls seemed to decrease. The falls were getting slower and gentler. You can see the line rising steadily back towards zero. Values in Melbourne even seemed to rise again for a short while, as the dark blue line was above zero.

But around the end of April, something changed. Sydney’s falls seemed to accelerate. And Melbourne’s took a dive too.

In Adelaide, Brisbane and Perth, the patterns are somewhat different. Perth’s values were falling hard until the end of February, before moderating. Adelaide house values are mostly stable and Brisbane actually seems to have had a small easing in the pace of price falls in the last few weeks.

To buy or not to buy Clues hidden in new housing price data 1

It’s important to understand the CoreLogic daily data behind the above graphs. The index uses information on sale prices to infer values of all houses, including those that are not for sale. That means this index is an estimate of the value of all homes, not just those on the market. It is updated every day with not only data on sales prices but changes in the homes that exist, e.g. new built apartments or old homes demolished.

WHERE TO FOR HOUSING?

Data can tell us what has just happened but it can’t tell us what we really want to know about — the future. So will price falls continue or will the market recover? There are many moving pieces. One support for house prices is that the RBA is likely to cut interest rates. That should make mortgages cheaper and let people spend more on homes.

But look deeper. The reason the RBA would cut rates is because the economy is showing signs of weakness. On Thursday, the latest unemployment data came out and it showed a rise in unemployment, a rise in underemployment, and the mix of jobs shifting from full time to part time.

To buy or not to buy Clues hidden in new housing price data 2

With record high household debt, weak wages growth and now also a rising unemployment rate, it is hard to see how much enthusiasm there will be for spending up big on property.

The other big factor affecting housing prices is policy. Labor has promised to make two policy changes — to negative gearing and capital gains tax — that could both affect the property market.

Their goal is to make housing more affordable. If Labor wins the election, their new policies will start on 1 January 2020. That could cause some people to try to rush into property before the changes take effect early next year, creating the appearance of a strong market before gravity takes hold again.

The effect of these policy changes is not likely to be big overall, but it could affect certain types of property. Labor will end negative gearing only on existing properties. That is likely to reduce investor demand for those properties and increase investor demand for new homes. With less competition for those kind of properties, prices in that category could fall, and more existing homes could end up in the hands of owner occupiers.

It’s a fascinating time to be watching the housing market. Anything could happen. If you’re buying or selling, you need to pay attention — as the graphs above show, trends in the market can change very, very quickly.

 

Source: www.news.com.au

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Brisbane’s unit market ‘a snake that swallowed a possum’

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Brisbanes unit market snake that swallowed a possum

Brisbane’s unit market is “like a snake that’s swallowed a possum” still trying to cope after an unprecedented construction boom, one expert says.

As a consequence, developers are thinking differently about the market, in terms of both what they are building and why.

At a residential property summit held by The Urban Developer in Fortitude Valley on Friday, experts in the retail sector noted how quickly Brisbane had grown up from being a “country town” to a metropolitan space with high inner-city living demand.

“I think probably the simplest way to describe it is the market is like a snake that’s swallowed a possum, and it’s just digesting it for a period of time,” Colliers International residential director Andrew Scriven said.

Mr Scriven said the city had seen “unprecedented” sales several years ago – upwards of 8000 a year – but that rate was rapidly declining. The market was trying to right itself, or “taking a breather”, he said.

“Before we went through this transformational change in the marketplace in terms of investor stock and inner-city living … the Brisbane apartment market was somewhere doing between 1500 and 2000 sales a year.

“Obviously it changed … inner-city living became a norm, town plans changed to allow for high density and we were able to … import buyers, and we did it exceptionally well.”

Mr Scriven said the “imported” buyers helped change the market but sales were softening and the number of projects being developed had dropped.

“There’s just a little bit of indigestion, so things are working their way out,” he said.

He said while the market was often being referred to as a different market, it was in fact simply returning to the pre-investor-boom market of the early 2010s, with projects still successfully completed.

Despite the hiccups, Brisbane’s situation was positive compared to the southern markets, with growth continuing and interest from interstate continuing, he said.

Cue Property Settlements director Leah Kent described the market as “very challenging” with a “trend of extremes”.

“Projects that have massive shortfalls is one extreme, and that can be anywhere from high price points to neighbouring comparable sales, which is obviously a massive factor when it comes to valuation results,” she said.

“I’ve never seen so many projects that have been successful, and there’s been a real opportunity there for developers to do well.”

Ms Kent noted a similar trend highlighted by other experts at the summit: high value and high quality apartment developments were selling better in Brisbane than lower quality.

As the glut of units left Brisbane’s market in recovery, the focus shifted from quantity to quality, and from investors to owner-occupiers.

Architect and Cottee Parker director Sandra Browne said she was increasingly being called in as part of marketing campaigns to sell high-end apartments to baby boomers with demanding standards.

But wasn’t just wealthy retirees are turning back to apartments but families as well.

Instead of owning and maintaining a large house, Ms Browne said some families with children were increasingly turning to apartment living as a more cost-effective and comfortable lifestyle.

The difference was their requirements for a high-end experience.

“It’s fair to say that the amenities have come a long way in the past few years,” Ms Browne said.

“It’s no longer good enough to put in a pool and a gym, you’ve really got to put in a lot more than that at this end of the market.”

Instead, she said, the amenities needed to go beyond retail spaces or open space to such specialised items as firepits, yoga lawns and even wine cellars.

“That was a real conversation starter for that particular project. The agent told me everybody wanted to know about the firepit,” she said.

“I think there’s a real emphasis on wellness, so places you can roll your mat out on the rooftop and do a bit of yoga, steam rooms, that sort of thing.

“We’re seeing that is the trend now, the wellness trend.”

Ms Browne said features such as private dining were becoming a standard in high-end properties designed to attract the cashed-up owner occupier.

 

 

Source: www.theage.com.au

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