Off-the-plan settlement sales price pain to worsen: Christopher Joye

Off-the-plan settlement sales price pain to worsen: Christopher Joye
Off-the-plan settlement sales price pain to worsen: Christopher Joye

The AFR columnist Christopher Joye has speculated the affluent Wentworth voters "might inflict massive financial losses on themselves in what is one of Australia's most investment-orientated electorates."

He was suggesting the electorate was playing dice with a Labor government and its housing policies as potentially detrimental. 

Joye noted, according to the last census, the proportion of investment properties in Wentworth is 42 per cent higher than the national average (specifically, 44 per cent versus 31 per cent of all homes).

In addition to being an electorate of landlords, there is an unusually large number of renters in Wentworth, some of whom who might welcome Aussie house prices falling 10 per cent to 15 per cent, which is "base case before factoring in Labor's policies."

Joye noted RiskWise Property Research predicts that if Labor comes to power at the next Federal Election, the situation will get much worse with house prices slumping a further 9 per cent in Sydney and Melbourne as a result of its policies to eliminate negative gearing and hike capital gains tax (CGT) by 50 per cent for anyone who holds assets for 12 months or more.

"Extensive RiskWise modelling shows that, nationally, dwelling prices would fall nine to 12 per cent should the proposed changes to tax legislation be voted through," the RiskWise authors concluded.

The report found that Labor's proposal to eliminate negative gearing would be equivalent to a 23 per cent increase in interest repayments for a new property investor, lifting theeffective annual mortgage rate from 5.10 to 6.25 per cent.

The 50 per cent increase in CGT further reduces the net present value of a property by two percentage points assuming an historically low 4 per cent rate of annual capital gains. 

Joye wrote the timing of Labor's policies could not be worse with the banking royal commission having wiped $42 billion off the value of the major banks - hammering super funds' equity portfolios - while limiting borrowers' access to credit.

"Even though Australian lenders have consistently maintained among the lowest mortgage default rates in the world, they are rationing credit to home owners because they are worried about breaching Labor's byzantine responsible lending laws, which have entangled the royal commission's activists.

"This is intensifying the correction in the housing market, which after appreciating almost 50 per cent since March 2012 has given back 4 per cent to 5 per cent of its value since October 2017 (and more than 7 per cent in Sydney).

"And with record numbers of apartments in Sydney, Melbourne and Brisbane still under construction, this pain is only likely to worsen."

Joye concluded that "the silver lining is that the bursting of the housing bubble blown by the RBA's ultra-cheap monetary policy has coincided with an economic boom fuelled by a highly competitive exchange rate and elevated commodity prices."

 

Tags: 
Off the plan

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