When Can We Expect the Property Market to Improve?
The Australian property market has experienced significant volatility over recent years, especially in 2018. Investors and homeowners are left grappling with questions about when improvements might materialize. At RiskWise Property Research, our dedicated team is committed to investigating the housing and investment markets, providing timely news and insights to help clients navigate this complex landscape effectively. Understanding the intricacies of the market and recognizing the factors at play is essential for making informed decisions.
The Current Landscape
Doron Peleg, CEO of RiskWise Property Research, offers a sobering outlook for potential buyers and investors. He advises that significant recovery in the property market is unlikely until at least the second half, and more realistically towards the end, of 2020. “There’s a lot going on in the property market right now,” he states. “A rare combination of major events, uncertainty, and confusion is leading to continued price reductions and falling consumer sentiment.”
Factors Influencing Market Conditions
Several key elements are currently shaping the property market. One of the primary factors is the ongoing political landscape. The final report from the Royal Commission into Banking and the looming federal election are creating a climate of hesitation among buyers. “Political uncertainty is causing people to hold off on property decisions,” Mr. Peleg explains. Many investors are waiting to see how the upcoming election may affect property policies, particularly regarding negative gearing and capital gains tax.
The Australian Labor Party (ALP) has proposed significant changes to the property market if elected, including limiting negative gearing to new housing and reducing the capital gains tax discount from 50% to 25%. Given the current polling, there is a high likelihood that these changes will be implemented, potentially during the 2020 budget. “The anticipation of these policy changes is making many investors hesitant to enter the market,” Mr. Peleg notes. This cautious sentiment is further compounded by the tightening of lending standards following the Royal Commission’s findings, which have led to increased scrutiny of mortgage applications and an overall decrease in borrowing capacity.
Acknowledging Market Risks
The second half of 2017 saw a significant rise in risks associated with the residential property market, and these concerns have persisted into 2018. Factors such as tighter lending standards, political uncertainty, and oversupply in certain unit markets have contributed to a decline in overall consumer confidence.
Mr. Peleg highlights that price reductions accelerated in the last quarter of 2018, particularly following the leadership spill that brought Scott Morrison to power. “We don’t expect to see much improvement in 2019, and at this stage, 2020 is not looking promising either,” he warns. The market will likely remain stagnant until after the Labor Party implements its proposed changes. “Only once these changes have settled down, reaching a new equilibrium, can we expect any upward movement in the market,” he explains.
The Broader Economic Context
Beyond political and lending factors, the broader economic context also plays a significant role in the property market’s future. Economic indicators such as employment rates, wage growth, and consumer confidence can heavily influence property demand. Unfortunately, many of these indicators are currently underperforming. For instance, the unemployment rate remains relatively high, and wage growth has stagnated, which affects consumer spending power and, consequently, housing demand.
Furthermore, inflationary pressures can also impact the property market. Rising costs for goods and services can lead to increased living expenses, forcing potential buyers to rethink their financial commitments, including property investments. If individuals are concerned about their day-to-day expenses, they are less likely to enter the property market, which can lead to further price stagnation.
What Lies Ahead for Investors?
For property investors, patience will be crucial in the coming years. “It will be a case of waiting out the continuous price reductions that will occur once the changes are made,” Mr. Peleg advises. Investors must be prepared for a period of market adjustment before considering new investments.
However, Mr. Peleg is cautious not to rule out the potential for broader economic measures that could influence market conditions. “If there are interest rate cuts or other macro measures introduced to boost demand, this could change the outlook,” he notes. RiskWise estimates a 50% chance of two interest rate cuts of 0.25% each in 2019, which could provide some relief to the struggling market.
The Implications of Tax Changes
The proposed changes to negative gearing and capital gains tax could significantly affect out-of-pocket expenses for investors. “These changes will have an impact comparable to a substantial increase in interest rates,” Mr. Peleg explains. RiskWise’s Risks & Opportunities Report indicated that the adjustments could equate to a sudden increase in costs of 1.15% for investors in the Sydney unit market.
This shift could discourage investment, especially in areas already facing downward pressure on prices. “Investors looking for capital growth should consider strategies that do not rely on existing taxation benefits,” Mr. Peleg advises. Buying before the changes are implemented may lead to depreciation of assets as the market transitions from primary to secondary markets.
Timing the Market
For investors keen on minimizing risk, timing will be crucial. Mr. Peleg suggests that they should wait for several key developments:
- Federal Election Results: Investors should monitor the outcome of the upcoming election to gauge the likelihood of policy changes.
- Formal Announcement on Tax Changes: Following the election, it will be essential to stay informed about the timing and implementation of the proposed tax reforms.
- Adjustment Period: After the changes take effect, investors should be prepared for a phase of continuous price reductions before entering the market again.
Mr. Peleg emphasizes that the current market conditions are unique, and few similar events have occurred that have led to such major shifts in out-of-pocket expenses. “This combination of factors—credit restrictions, the results of the Royal Commission, and significant changes to negative gearing—makes for an extremely unusual market environment,” he says.
Opportunities Amidst Uncertainty
While the overall outlook may appear bleak, there are still pockets of opportunity within the market. Mr. Peleg points out that certain areas, particularly in southeast Queensland and regional Victoria, continue to offer potential for capital growth. However, as the general weakness in the property market persists, the number of these opportunities is diminishing.
At RiskWise Property Research, our team is dedicated to identifying these opportunities while also providing thorough analysis of the potential risks involved. We strive to keep our clients informed about market trends, enabling them to make educated decisions that align with their financial goals.
The Importance of Due Diligence
In such an uncertain market, conducting due diligence becomes paramount for investors. This means thoroughly researching potential investment areas, understanding local market dynamics, and analyzing historical performance data. Investors must not only focus on current market conditions but also consider long-term trends and forecasts.
Moreover, engaging with experts in the field can provide valuable insights. Our team at RiskWise Property Research is equipped with the knowledge and resources to assist investors in making informed decisions. We analyze various market indicators and utilize advanced modeling techniques to assess risk and opportunity, ensuring our clients are well-prepared for the future.
The Role of Technology in Investment Decisions
The role of technology in real estate investment is becoming increasingly significant. With the rise of data analytics and market research tools, investors have more access to information than ever before. At RiskWise Property Research, we leverage advanced data analytics to track market trends and identify emerging opportunities. By utilizing technology effectively, investors can make more informed decisions and mitigate risks associated with market volatility.
Consumer Sentiment and Market Confidence
Consumer sentiment plays a crucial role in the property market. When confidence is high, buyers are more likely to enter the market, leading to increased demand and, ultimately, rising prices. Conversely, when uncertainty prevails, as it currently does, potential buyers may delay their decisions, resulting in decreased demand. Mr. Peleg emphasizes that “the psychological aspect of the market cannot be underestimated.”
As confidence wanes, sellers may also be compelled to reduce prices to attract buyers, further contributing to the downward trend. Our team at RiskWise Property Research continuously monitors consumer sentiment indicators, helping our clients understand the prevailing attitudes toward property investment and adjust their strategies accordingly.
The Impact of Interest Rates
Interest rates are another significant factor influencing the property market. Lower interest rates generally stimulate demand for housing, as they reduce borrowing costs and increase affordability. Conversely, rising interest rates can dampen buyer enthusiasm and lead to a slowdown in market activity.
Mr. Peleg mentions that “interest rates are a double-edged sword.” While lower rates can boost demand, they can also create challenges for investors, especially if they lead to rapid price increases, making housing less affordable in the long run. As such, monitoring interest rate movements and anticipating their potential impacts on the market will be essential for investors looking to make informed decisions.
The Role of Government Policies
Government policies can significantly shape the property landscape. Initiatives aimed at increasing housing supply, providing assistance to first-time buyers, or implementing tax incentives can all influence market dynamics. Mr. Peleg points out that “any major government policy to increase housing supply to address housing prices could have a strong adverse impact on the property market in the medium to long term, particularly on units.”
The Liberal Government’s commitment to investing in affordable housing and implementing stamp duty cuts is an attempt to alleviate some of these pressures. However, the potential consequences of such policies must be carefully considered, especially regarding their impact on property values and investor confidence.
Conclusion: Navigating the Future
As we look ahead to the property market’s future, it is evident that significant challenges and uncertainties lie ahead. While the landscape may seem daunting, our team at RiskWise Property Research remains committed to delivering insights and information to help investors navigate this complex environment.
Patience and informed decision-making will be critical for anyone considering entering the market. By understanding the broader economic context and remaining vigilant in monitoring changes in policy and market conditions, investors can position themselves for success,even amidst uncertainty.
In conclusion, while we may not see immediate improvements in the property market, being proactive and strategic in our approach will ultimately yield the best outcomes. As the market stabilizes and potential opportunities arise, those who have prepared and planned accordingly will be well-equipped to seize them when the time is right. At RiskWise Property Research, we are here to support you through these challenging times, ensuring you have the insights you need to make the best investment decisions for your future.
Our commitment to thorough market research and analysis equips our clients with the tools necessary to navigate these unpredictable waters. By staying informed and strategically planning, investors can not only survive but thrive in the evolving property landscape. We encourage potential buyers and investors to engage with our insights and resources, allowing us to guide them on their journey toward successful property investment.
As the property market continues to evolve, our focus remains on providing clarity amid the chaos. By analyzing market trends, leveraging technology, and offering expert insights, RiskWise Property Research is dedicated to ensuring that our clients are equipped to make well-informed decisions. In a time of uncertainty, we stand ready to provide guidance, helping investors identify opportunities and navigate challenges effectively.
In summary, while the current state of the property market may be fraught with challenges, a well-informed approach, grounded in research and analysis, can lead to opportunities for growth and success in the long run. Our team is here to help you every step of the way.
