Two big questions loom large in the Australian property market this year. What will happen to credit conditions once the Royal Commission into banking is over; and how will the Federal Election affect the market, especially if Labor wins and major changes to tax policy on property investments are introduced?

Latest figures from CoreLogic show most regions across Australia were weakened by the banks’ tighter lending practices in 2018.  The effect was magnified in Sydney and Melbourne, where many buyers were unable to purchase at the price level they expected or unable to compete at auction due to longer approval processes.

Property prices and auction clearance rates fell faster than is normal for the first year of a correction, culminating in a -10% dip in house prices in Sydney to a median $918,000 and a -9.1% drop in Melbourne to a median $751,000.

Apartment prices also fell by -6.3% in Sydney to a median value of $711,000 and -2.3% in Melbourne to a median $541,000, according to CoreLogic.

RBA Governor Philip Lowe and Federal Treasurer Josh Frydenberg have both indicated that credit is too restricted but nothing is going to change until the Royal Commission delivers its final report on February 1.

This report will include recommendations to improve accountability and regulation and should lead to more universal standards of lending for property buyers. Those standards should rightly be stricter than in previous years when credit was too easy; but hopefully they’ll also be more workable than they are now.  

The Federal Election will be a major disruption this year.  It’s highly likely to happen in mid-May, which means market activity will dampen down around April, as most people adopt a ‘wait and see’ mentality. This is typical close to elections but buyers and sellers will be even more cautious this year – especially investors.

Here’s a quick re-cap of Labor’s proposed changes to negative gearing and capital gains tax for investors.

  • If Labor wins, it intends to limit negative gearing to new or off-the-plan investments; and it will reduce the current capital gains discount from 50% to 25% if you hold your property for more than a year.
  • These changes will apply to investments purchased after a certain date, which will be announced after the election.  Existing property investments will be grandfathered, meaning those owners can carry on with negative gearing and will still receive the 50% capital gains discount when they sell.

This year in Sydney and Melbourne, I’m expecting cooling market conditions to continue. I think both cities are getting close to the bottom of their cycles, however it might get a bit worse before it gets better.

I think we’re through the worst part of the correction in both markets, so Autumn could be the best time to buy. The bulk of new campaigns will begin after the Australia Day weekend, so buyers should expect to see lots of new options advertised.

First home buyers in Sydney and Melbourne are certainly taking advantage of the market cooldown, with activity in NSW reaching its highest level since stamp duty concessions were introduced in July 2017.

Latest data from the Australian Bureau of Statistics shows 16% of new loans in NSW for the month of November 2018 were for first home buyers. In Victoria, activity was even stronger at 19%.

Changing market conditions always present opportunities. Here’s my advice for 2019:  

  • If you’re a buyer, now’s the time in Sydney and Melbourne.
  • If you’re a seller, seek advice from an experienced agent who has been through market highs and lows before. They will know how to maximise your sale price in today’s market.  
  • If you’re an owner, ignore the scary headlines and focus on interest rates. Some lenders are offering fixed loans at far lower rates than variable, so there might be an opportunity for you here. Loan rates in the 3%-4% range will not last forever. Remember, the long term average in Australia is above 7%.
  • If you’re an investor looking to buy in the future, consider whether you can afford to invest without the benefits of negative gearing.  Every poll has Labor ahead, so it’s best to be prepared for a change in tax policy should that be the case.

Whatever your real estate goals are this year, I wish you all the very best.