Well another election has come and gone, and no matter what side of the fence you sit – you’re probably pretty glad it’s over so we can all get on with it!
Here at CFMG Capital, election results and subsequent policy outcomes can impact the markets we operate in across two distinct sectors. Firstly, as a land developer - discussions around negative gearing, potential removal of capital gains tax discounts and the potential new first home buyer deposit policy announced late in the campaign all had the ability to have an impact on our development projects. There was certainly a chance for a bounce in sales, given the ALP policy to remove negative gearing didn’t apply to new homes – however, it was our belief this would be short-lived, or not occur at all as these properties would have great difficulty on the re-sale market.
On the other hand, as a fund manager with a huge proportion of investors doing so via their SMSF, the potential seismic changes to the tax structure of retirees, particularly in relation to franking credits would have likely reduced our pool of potential investors as more and more SMSF trustees, particularly those in retirement phase would be looking to replaced their franking credit income with investments paying a passing monthly or quarterly yield. Certainly, whatever your view on the policy – it’s the one that played a huge role in deciding the outcome of the 2019 election.
Looking at the broader property market, and the implications - within just a few days of the result, there was action from two federal authorities in APRA and the Reserve Bank. With APRA announcing plans to potentially loosen lending restrictions that require lenders to determine loan serviceability on a rate of 7% compared to commonly available variable rates well under 4%. On the same day, the RBA forecast multiple rate cuts in coming months as they look to stimulate employment growth and meet the target inflation rates.
With this combination of no changes to tax regulations around property investment, falling interest rates, increased loan serviceability and a new incentive scheme to encourage first home buyer activity – it’s not unreasonable to think any decline in property values in coming months in the major markets of Sydney and Melbourne in particular to shallow out and subsequently rise in a more linear fashion as certainty returns to the market. Meanwhile, more stable markets like South East Queensland can expect a boost from their relatively flat 2019 so far, particularly in sales activity and volume, as well as likely price growth.
As the ALP was widely expected to win the election, a number of their more hotly debated policies were largely already priced into the market and the effects of those should unwind in coming months, and thus increasing sales volumes at a bare minimum.
Looking to the investment market, particularly in the SMSF space. Trustees can now move forward with far more confidence that they haven’t lost any income they were deriving from dividend imputation credits and will also have a renewed confident outlook on property as the basis for any investment decisions.