Only days after a massive shock in the election and most people are wondering what that means in real estate and is this a positive or a negative.
- Tax cuts promises lowering tax brackets from the average person on 37 cents: Tax cuts will occur over a length of time but this still will put more money in the pockets of the average Australia.
- Negative gearing will stay in and so this will now encourage investors back into the market who were sceptical of where the market may of being heading under a Labor government.
- First home buyer incentive which may be operational by the start of the new year. This will allow first home buyers to avoid mortgage insurance if they have a 5% deposit. It will be interesting to see if this is a saved 5% or it could be gifted and it will also be interesting to see if rental payments will count as a saving pattern.
- Something not directly from the election but as a result of the election is the incorrect poll predictions of banking and political polls and their conservative attitude towards the predicted results are certain to have questions. How this affects you and property? Interest rates have been held firm due to the cash rate. The reserve bank will have huge pressure now to lower the interest rates a point (our language 0.25% or a quarter of 1%) or on the average loan of $400,000 - $20 per week. This is huge.
- Why the pressure for the reserve bank to lower interest rates: Cost of living vs the wages people get and also job vacancies have risen. This means that the average person needs more money, the average business is struggling to pay it and survive and if the business goes out of business then their ex-employees struggle to get rehired. Job security is threatened by outsides threats, foreign business as competition, more businesses in the same area, accessibility to the global world means our competitors are now not just in Australia. Off shoring of jobs to cheaper wages and AI (artificial intelligence) which is the buzz in business at the moment – setting up information system and delivers it, automation in a simple version.
- Lowering of interest rates is expected in June 19, I don’t personally expect it as the Reserve Bank is not on ground level where people are hurting and from recent polls it is easy to see that they can’t rely on them to let them know what is happening.
So what issues do we really face on ground level from the election?
- Now the banks see that Liberals are in they will start to soften the tight grip they have on the equity of individuals, which is really the tight grip on the market. They seem to control the market not the reserve. They say it’s the constraints from the Royal Commission but they also know they have deliberately frozen the middle end mums, dads and business people because of where they felt the market was going which like the polling errors may be clearly wrong.
- An economy that is controlled by banking will have to soften so not only the banks can make their money but so can the average punter. The banks can blame the royal commission, that maybe if they did the right thing from the start you wouldn’t be having things so tough now. But the holding of people’s equity for the rainy day due to the downturn affect of the market has only cause more downturn affect. Remember the reserve bank controls the market not the banks themselves.
- Job security until the rise is going to be vital.
- Higher costs of living will make people look for less spending or cheaper options and this is going to bring foreign raiders in to our economy, making it hard for businesses to survive. This will result in big companies controlling many markets, happy to take losses to wipe the competition out by lowering margins to the ridiculous which will make everyone happy short term, ultimately leading to dearer prices on items and less jobs in the long term. Take Milk for example, cheaper now but wait until the farmers are wiped out. We have to be smarter and shop local or even shop Australian.
What will the real estate market do?
Well I’m not a financial planner, or an accountant, or a lawyer so I cant give you advice on this but this is my opinion:
The real estate market has had a negative downturn in our markets from about 12.5% -25% depending on areas from its peak in mid 2018. The downturn will continue for a very short period 3-12 months as the glut (excess) amount of properties start to get taken up by buyers. There will be an influx of investors into the marketplace. Lower rates combined with excellent returns on a lower purchase price for the northern end of the central coast means positive geared properties are on offer, especially if the banks are intending 20% equity. I think this will unfreeze the smart banks for lending as they will realise someone will capture this market place. The investors will want to get in before the push of the first home buyers in Jan 1 2020. Then the double push by investors and then first home buyers, should trigger competitive prices and this will lead to prices increasing. By mid 2020 the dial will turn from a negative upwards if all is correct. This will start a positive trend that should see both the Chinese and Indian markets return as the world economy struggles and the Australia economy is once again saved by its real estate, the one thing we have plenty of at the moment. Interest rates will rise a little with this confidence in the market place but not hugely as the Reserve bank will be cautious not to send us like the rest of the world. It was predicted in an article written in mid 2019 (where the market peaked) I read that by 2023 the real estate market will double in our major cities. Before the election this would have seemed impossible but is it so impossible now? The world will be looking to where they store their investments, the first home buyers and investors will be looking of where to store their hard-earnt money to make it grow and real estate will increase. Will be interesting? My thoughts are this. Real estate is a long term game, timing is important for short to medium growth and if that is your game then the time to buy not sell is now.
What I have learnt in my real estate life is this. There are people and there is property. People: Life is short, if you can do something today then why wait for tomorrow. Property: the difference between the rich and the poor is how far ahead they are thinking.
Advice for our newly elected politicians, not just Scott Morrison? Plant a tree in which you will never see the shade.