Will the Australian property market stabilize now the election is over?

On the back of a Coalition victory at the polls, the Australian property market is expected to undergo a shorter and shallower price downturn than previously forecast, with the stabilization of the market predicted for 2020. The latest research from Knight Frank highlights the significant impact of continuity in the market that comes with the re-election of Scott Morrison and the LNP for a third term.

To say Labor’s proposed changes to franking credits, capital gains tax and negative gearing caused a stir is an understatement, but with these changes no longer on the table, market confidence is expected to rise in the following months, leading to a less damaging long-term trend for property prices. Although house prices are still expected to decrease significantly over the next twelve months, the continuation of the Coalition government means this decrease will be significantly less painful for investors — as opposed to the deep dive that was anticipated in the result of an ALP victory.

Economically, the predictions remain unchanged and a downturn in prices is still predicted, however, the June 4th interest rate cut by the Reserve Bank will support employment growth and provide greater economic confidence moving forward. As expected, the cash rate was cut by 25 basis points to bring the interest rate down to 1.25%. A secondary cut of an additional 25 points (down to 1%) is anticipated as early as August and definitely before the end of the year. The RBA has also proposed changes to mortgage loans serviceability requirements, including possibly abolishing the existing 7% interest rate floor. This would see lenders calculating loans using a 2.5% buffer above the current mortgage interest rate, instead of being calculated at whichever is higher, 7% or a 2% buffer.

Long-term, prospects for first-home buyers remain uncertain, as investor tax concessions are no longer a point of discussion. The election result does bring some significant relief for first-home buyers however, at least in the short term, with the Morrison government’s announcement of a first-home buyer loan deposit scheme. This recently-announced scheme will be in place from January 2020 and will see eligible first-time property purchasers able to borrow 95% of the home’s value, and the axing of mortgage insurance for those who qualify. In order for this to happen, the government essentially guarantees the remaining 15% of the standard deposit requirement of 20%. This scheme is available for singles earning under $125,000 and couples with a combined annual income of $200,000. So far, only 10,000 guarantees have been confirmed, although this may expand as the scheme is rolled out next year. Despite this relief, the continuation of the LNP government does mean first-home buyers will no longer benefit from the improved affordability that was expected to result from negative gearing cutbacks and capital gains tax changes.

Overall, the end of election season does bring about a significant increase in buyer certainty, with experts at Domain and Core Logic anticipating the election result will likely bring forward the bottoming out of the market to the end of this year, rather than in the first half of 2020, as was initially expected.

Written: 31 May 2019

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