State of the market – danger or opportunity?

It’s safe to say that there’s a higher than average chance that Australia will have a Labor government next year, if not before. How, then, will Labor’s policies affect our already anaemic real estate market?

Here, I’m talking about the removal of negative gearing on all but new properties, and the halving of the capital gains tax concession. Will they, as some predict, be the final nail in the coffin, with devastating flow on effects to the wider economy?

I don’t think so. This is why:

So far this year, the market has weakened, particularly in apartments. This is mainly due to a fall in investor demand, which I and many other real estate agents have seen first-hand. More of the apartments I have sold this year have gone to home buyers, not investors, in contrast to past years, where the reverse has been true.  One of the main reasons for the investor exodus is the tightening of bank lending requirements resulting from the Banking Royal Commission. Investors can’t borrow nearly as much or as easily as before. While sharp rises in the market in previous years have often been underpinned by speculators looking for quick capital gains, these players have definitely left the building.

Supply and demand factors are also at play here. On the supply side, there has been unprecedented apartment development in Sydney’s East; and this has coincided with a fall in demand, partly due to decreasing levels of immigration. Lower immigration levels are also a major cause of the weakening rental market – another reason for investors to stay home.

Since investors are already sitting on the sidelines, the impact of the proposed policies could be minimal. And there’s no reason to expect that they’ll cause a rush to market because the changes will only apply to new purchasers – existing investors will retain their current benefits.

Which is why now (wait for it) could be the perfect time to look for buying opportunities.

In the medium to short term, supply and demand imbalances are likely to sort themselves out as new development levels drop in response to the market, while immigration continues to increase population. The tightening of lending requirements is largely the result of the boom time excesses that caused these imbalances and their political effects aka the Banking Royal Commission.  As these correct, so we can expect borrowing to become easier. Essentially, while the market is undeniably soft right now, disaster is far from certain. And if you’re with me on this, the existing situation could offer genuine buying opportunities for medium to long term investors. While I wouldn’t recommend betting the farm, so to speak, chances could be missed if you sit on the sidelines.

Should you wish to discuss buying or selling, please contact me.  Good results remain for the taking on both sides.

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