Why I am liking this election: Robert Simeon

Yes, I know everyone hates elections but the more I look at this election the more I like it simply because real estate is front and centre.

History will judge whether the government and opposition erred by allowing negative gearing into the debate, although what they have done is to finally open that can of worms which previously had been removed from all discussions.

When you take the time to contemplate the direction that property prices are headed (thanks mainly to all these new developments) there are plenty of dark clouds building. For mine; the smartest solution is to simply limit the number of investment properties to a single tax file number. Opinions vary that negative gearing is driving the values of property although investors account for just one third (approximately) of purchases, so that in itself can’t be the major contributor.

The problem why Australia’s property prices are so high sees the blame at failed political policies where prices have increased two to three times than that when the Baby Boomers were buying property – which by the way were single income families. Governments have failed miserably when it comes to infrastructure where we only ever hear of Very Fast Trains in an election year – come July 2, we in all probability won’t hear it mentioned for another three years.

Opinions when it comes to real estate are always interesting where today we see many property markets starting to ease and nobody comes out and states that this is actually a good thing. Many of Australia’s property markets are actually self-medicating and correcting which is great news given the damage a crash can cause. Naturally we should not also forget that property markets historically slow when an election is announced although many parts of Australia had already started to re-calibrate their prices downwards – we have passed the peak.

This week we saw that for the first time in seven years Australia was now recording deflation – which immediately called for the Reserve Bank of Australia (RBA) to cut the cash rate when they meet next week. Even if it were to cut the cash rate say – 0.25 you can rest assured that the banks won’t be passing this on.

I’ve been on the public record as being opposed to federal government policy in December 2008 when off – the – plan – purchases by foreigners were raised from 50 to 100 per cent – the governments have not addressed nor even discussed this. With interest I have noted that this month the ANZ, Commonwealth Bank and this week Westpac are no longer lending money to foreign buyers wanting to buy residential property in Australia.

The major lenders have already implemented black – spot areas where they will no longer finance new apartment developments. Interestingly nobody has even bothered to raise this with any politicians given this is a significant stance by the major lenders that relates directly to government policy. Now we can expect this to remain the case for quite a few years to come with Sydney and Melbourne embarking on massive new development construction – the major lenders have massive exposure here.

Now should the ALP be elected what does this do to their new policy regarding negative gearing? I can tell you what it will do to off – the – plan acquisitions (new property) – it will shut it down almost immediately. Investors are not permitted to buy existing properties, only new – despite 93 per cent of investors preferring to buy existing.

One would think that there should be much more debate about the repercussions to the economy with the major lenders now not lending to foreign buyers. Then of course one can’t rule out a significant price correction given these new developments are massively over valued due mainly to foreign buyers driving these prices. Investors aren’t going to be buying into these new developments for negative gearing purposes when they know full well that these properties are facing a significant value correction.

One only has to look at the body language of the major banks to see quite clearly they have already commenced direct action to minimise their exposure to this newly created property market.

The problem as I see it is that politicians are making some huge mistakes in judgement when it comes to our property markets but sadly nobody is asking them the right questions. A classic example of this the banks deciding to restrict all loans to foreign buyers which is in direct contradiction to the federal governments policy – which we all know is dumb. Even funnier is that the government did not bat an eyelid when the major lenders announced this policy review.

MOSMAN – 2088

Number of houses on the market this time last year – 61

Number of houses on the market last week – 43

Number of houses on the market this week – 45

Number of apartments on the market this time last year – 52

Number of apartments on the market last week – 50

Number of apartments on the market this week – 55

CREMORNE – 2090

Number of houses on the market this time last year – 1

Number of houses on the market last week – 7

Number of houses on the market this week – 9

Number of apartments on the market this time last year – 15

Number of apartments on the market last week – 26

Number of apartments on the market this week – 26

NEUTRAL BAY – 2089

Number of houses on the market this time last year – 2

Number of houses on the market last week – 11

Number of houses on the market this week – 11

Number of apartments on the market this time last year – 30

Number of apartments on the market last week – 27

Number of apartments on the market this week – 23

ROBERT SIMEON is a director of Richardson Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985. 
He has also been writing real estate blog Virtual Realty News since 2000.