Spring is traditionally a busy time for the property market but on the back of three interest rate hikes and federal budget tax changes, experts predict investors will take a cautious approach to buying, if they choose to at all.
Tax settings from 1 July saw negative gearing abolished on existing investment properties and the 50% capital gains tax discount for properties owned for more than one year has been slashed.
The move, announced by the government back in May, has seen many investors flee the market.
Data from the Australian Bureau of Statistics shows the total number of new home loans fell 5.4% in the June quarter, which was driven by an 8.6% decline in investor lending.
While confidence is at historic lows and with a recovery expected to take time, Propertybuyer chief executive Rich Harvey says now could be the ideal time to crack into the market while competition is lower than usual.
“So many buyers have abandoned auctions; they’re not turning up….we’re seeing it right across the board,” he says. “It is just a wonderful time to buy, and I just can’t get that message out quick enough.
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Propertybuyer chief executive, Rich Harvey. Picture: Supplied
“Just because the budget changed some of the tax rules, the fundamentals of the property market haven’t changed and what I mean by that is, the fundamental undersupply situation that Australia faced pre-budget is going to get worse now, post-budget.”
As such, Mr Harvey said investors should be looking to higher yield properties.
“Don’t get me wrong, capital growth should be the virtually the number one focus for investors because it’s the capital growth that will make you wealthy,” he says.
Duplexes, rooming houses, micro-houses and co-living houses are expected to be popular among investors. Picture: Getty
“The yield and the cash flow helps you support holding the property over the long term. So, I think investors are going to be more skewed towards higher yield type of properties… it doesn’t mean they’re always better financially, but it’s going to be easier to hold those properties for the long term.”
Mr Harvey predicts a “groundswell of investors” will move toward higher yielding properties such as duplexes, rooming houses, micro-houses and co-living houses.
Will lenders up the ante?
AMP head of investment strategy and chief economist Shane Oliver says while competition between lenders is certainly intense, as the spring selling season looms he expected it will probably heat up even further.
AMP head of investment strategy and chief economist, Shane Oliver. Picture: Supplied
“But at this stage, there’s nothing significant and when you look at the rates on offer, they’re not much better,” he says.
“I think banks face all sorts of issues at present. Normally they can lower their fixed rates on offer, but the problem is that the bond yields, the wholesale cost of money has gone up, which increases the cost of funding the fixed rates and their ability to offer lower rates is somewhat restricted.”
As for how the spring selling market will track, Mr Oliver expects it might be fairly difficult, with renewed debate in the last week as to whether the Reserve Bank’s next meeting in late September will result in a rate hike or a hold.
The RBA says it is poised to hike interest rates if needed. Picture: Hu Jingchen/Xinhua
“We think the risks still skew more towards a hike and the Reserve Bank is continuing to warn it may have to raise interest rates again, so that’s not particularly positive,” he says.
“And at the same time…I don’t think prices have come down enough to entice investors back into the market because tax changes basically mean a lower after-tax return for investors.
“They’ve sort of retreated to the sidelines and probably won’t come back until they see a significant rise in rental yields.”
Additionally, Mr Oliver says the fall in listings around the country, particularly in Sydney and Melbourne, which happen to be the weakest markets, were a factor.
“It might only be a matter of time for a fall in listings in Brisbane, Adelaide, and Perth and then the question is whether some of those listings come back on when we get to the spring selling season.
“So far, the markets have been supported, if you call it that, by a reduction in listings, so it’s really a demand side problem.
“There hasn’t been a surge in supply, but buyers have been holding back given high interest rates, low confidence, and the tax changes.”
New South Wales-based mortgage broker Jen Hughes says while spring usually marks the time of year where more properties come to market, there will be competition amongst other buyers emerging with an equal mindset.
“I think it’s always a good time to buy but right now, if you want a bargain … what we’re telling all our clients, if you’re a first homebuyer sitting on a fence, now is the time to buy,” she says.
Lenders were trying to find more incentives to find clients, Ms Hughes says, not just through products, but more lenient policies.
“Commonwealth Bank, for instance introduced two or three really great policies for first homebuyers. One of them is that… if there’s an extra bedroom, they allow some notional rent to be used towards the purchasing, so adding to their income,” she explains.
“They’ve also got this policy where you can exclude all the repayments for a HECS debt if the standard payment would see that clearing within the first 12 months of having the loan.”
Buyer motivations
Sydney-based Belle Property agent Justin Spencer says he has always been a big believer that buyers don’t buy seasonally; they buy in their circumstances.
Experts say buyer pools can be challenging to predict. Picture: Getty
“So spring is when people think it’s a good time to sell, but we see the buyer pool thin out, especially when that first flood of listings come on in spring,” he explains.
However, many buyers were currently looking at options to upgrade.
“Depending on their own situation, some buyers come into the market more confident than others, and it might just be their employment status is strong, they’re secure, and they’re making better decisions,” he adds.
