There is an old saying in real estate which is very true – “the property market is built on confidence”.
You only have to look at the recent history of the Australian property market which underscores this point.
During the boom in financial markets over the period 2004 to 2007, property values in most parts of Australia surged because confidence amongst property buyers was sky high.
However, when the global financial crisis hit, confidence plummeted and so did property values. Since, the global financial crisis, growing confidence in the Sydney and Melbourne markets has seen property values surge while the end of the resources boom has witnessed falling property prices in regional mining areas due to a corresponding lack of confidence.
One of the positives of the Federal election is that are we are now likely to see a Coalition Government with a working majority rather than a hung Parliament which occurred after the 2010 Federal election. In that respect, the minority Federal Government which governed Australia over the subsequent three years until 2013, had a negative impact on consumer confidence due to its failure to deliver a strong and consistent policy direction.
Most leading economists have pointed to this minority government as being a major drag on consumer confidence because it is so rare in Australian politics. To that end, the election of the majority Government should be a major positive for the local property market as it removes that last major negative undermining consumer confidence which has made buyers hesitant about buying property over recent months.
We recently had one of the longest election campaigns in Australian political history and during elections people traditionally put off making big decisions such as buying property. Another positive flowing from the election result is that there will be no changes to negative gearing as advocated by the Labor Party.
Professionals as well as many other leading property groups throughout Australia campaigned against these changes to negative gearing during the election campaign as they would have distorted the real estate market. We pointed out that when the Hawke Government abolished negative gearing back in 1985, it led to a dramatic reduction in the number of property investors in the real estate market and in-turn the supply of rental properties. As a result of this flight of investors from the property market, weekly rents throughout Australia surged by 37% and by a massive 57% in Sydney.
History shows that changes to negative gearing would underpin investor confidence in the property market and discourage people from buying investment properties. Investors as well as property owners can now breathe a big sigh of relief knowing that there will now be no changes to negative gearing as a result of the election of the Coalition Government.