Trends in the residential property market can have a significant impact on the air conditioning industry and according to RiskWise Property Research CEO, Doron Peleg, Australia is in for a rough ride this year and the next.
Since the second half of 2017, the major risks associated with the residential property market have significantly increased and this will continue in 2019.
This is due to tighter lending standards, the results of the Royal Commission, the fear of potential changes to negative gearing and capital gains tax, political uncertainty, and unit oversupply in conjunction with a sharp drop in dwelling commencements.
All these factors could shape the entire landscape of residential property not only next year but into 2020.
Unless demand for dwellings is boosted via intervention from the regulator or state and federal governments expect a tough couple of years for most, but not all, of the property market in Australia.
RiskWise recently released its Quarterly Risks & Opportunity Report which based its findings on major assumptions about the months to come.
This includes: credit standards and restrictions would be either tightened further or remain at the current level; Labor could introduce changes to negative gearing and capital gains tax in the 2020 Budget after winning the upcoming Federal election and; the RBA will not increase interest rates at least until the second half of 2020, but more likely 2021.
We have entered uncharted territory as all these factors, the frequency that they are changing and the very sudden impact they are having on the property market are incredible.
And it is very possible that during the first half of 2019 there will be more dramatic developments and volatile changes that might further impact the market including an unexpected win by the Coalition in the Federal election, major measures to boost demand and an interest rate cut by the RBA.
Credit restrictions have seen a reduction in the volume of loans of around 10 per cent and borrowing capacity of around 20 per cent and this has had a direct impact on dwelling prices, due to the smaller number of qualified buyers as well as those buyers having a smaller budget.
While, APRA has recently removed the 30 per cent interest-only lending cap, this is unlikely to have a material impact on the housing market as banks are likely to continue to tighten credit standards both due to the Royal Commission’s findings as well as to mitigate the risks associated with interest-only loans in a market where the majority of the properties that are purchased or re-financed are depreciating assets.
In addition, buyer sentiment had been hit as residential property, particularly in Sydney and Melbourne, is seen as a depreciating asset. Meanwhile, Western Australia and the Northern Territory have been impacted due to already weakened housing markets and the end of the mining boom.
Another contributing factor is the fact that many major lenders are no longer approving lending for residential properties against SMSFs and this will have a direct impact particularly on new properties as a large proportion of investments are made through advisors and accountants and concentrated in new dwellings, meaning there should be fewer off-the-plan investors, and thus a lower volume of pre-sales and sales.
In addition, restrictions on foreign investor activity and fund transfers, and crackdowns by the Chinese government means they are less prevalent in the property market.
Finally, fears of the proposed changes by the Labor government (to limit negative gearing to new rental dwellings and to halve the CGT tax discount from the current 50 per cent to 25 per cent) have already impacted the market.
The next Federal election is likely to take place in May 2019 and the probability that the ALP will win and implement the changes in the 2020 Budget, will impact the housing market well into 2021.
The risk of price reductions should remain very high at least until the second half of 2020. This adds uncertainty and impacts buyer sentiment.
About the Author - Doron Peleg is the Chief Executive Officer (CEO) of RiskWise Property Research which was formed in 2016 with the goal of providing property risk advice and research services to help its clients make informed purchasing decisions.