What does Australia’s election outcome mean for property?

Investor sentiment has been buoyed by the Liberal party’s victory in the polls.

May 20, 2019

Australia’s recent federal election outcome is expected to deliver an uplift to the national property market, as investor sentiment is buoyed with the Liberal party’s victory in the polls.

The opposition party, Labor, was proposing to make changes to negative gearing and capital gains tax (CGT) had they toppled the Liberal-led Coalition government.

The result will provide greater certainty around investment in the beleaguered residential sector, says Leigh Warner, Head of Residential Research in Australia, JLL.

“Housing market sentiment has been weak for some time, but there was no question that Labor’s proposed tax changes were adding to the negativity. Taking away the uncertainty will make both owner occupiers and investors more confident about re-entering the market.”

The Property Council of Australia said the election result, which is likely to see the Coalition secure a majority government with 77 seats in the House of Representatives, showed voters had “rejected risky taxation changes at such an uncertain time in the property cycle."

Goldman Sachs predicted a “moderate positive shock to sentiment in the corporate sector and a more meaningful one in the housing sector." according to the Australian Financial Review

First home buyers key

Australia’s housing crunch has hit hardest on city high-rises and major projects with 500 or more apartments. Sales rates are slow, making pre-lease hurdles for developers difficult to obtain.

The number of apartments being marketed across Australia’s six major capital cities has fallen 48 percent over the year to the end of March 2019, according to data from JLL.

Labor pledged to halve the current capital gains tax discount from 50 percent to 25 percent on all properties bought after January 1, 2020, as well as limit negative gearing on new investments - that is, allowing net losses (including interest costs) to be offset against an investor’s total taxable income.

It said the changes would open up the market to low-income earners and first homebuyers, an idea countered by industry leaders, including JLL Chief Executive Officer Stephen Conry, who said it would have been “badly timed given the current fragile state of the residential market”.

“We should be encouraging more investment, not discouraging it in the A$7 trillion housing market,” he said.

In a proposal agreed by both political parties, the Coalition is expected to pledge A$500 million towards first home buyer deposits.

Under this scheme, first home buyers would have the ability to produce a five percent deposit, rather than the usual 20 percent, to enter the housing market. This would be made available to people earning under A$126,000 a year.

The implementation of this policy, however, would be contingent on it passing through the federal senate, dominated by Labor and the Greens.

Build to rent

Eager to leverage this new phase of government, industry leaders are urging politicians to turn their focus to boosting the diversity of housing stock, particularly stock that is built for long-term rent.

Lobbyists have for some time pressed government to introduce a 15 percent withholding tax on the property sector, down from the current 30 percent, to encourage institutional investment. This is the same level of withholding tax applied to affordable housing and student accommodation, and was a policy offered by the Labor Party.

“I think the Prime Minister needs to look at the solutions to address the supply side, the provision of particularly build-to-rent housing and its treatment as an investment class,” Frasers Property Australia chief executive Rod Fehring, told the Australian Financial Review.

Property outlook

The immediate impact of the election result should start to be felt by the Australian property market over the next six-to-12 months, says JLL’s Warner.

“We expect that improved confidence will see residential house prices stabilise over the second half of 2019 now, while the very real prospect of the Reserve Bank of Australia cutting interest rates in the next few months could see activity levels improve.”