How Elections Affect The Property Market

Andrew Moore
February 28, 2019


2019 is a federal election year, with the date most likely to fall sometime before mid-May.

And with this election perhaps more than any other, property is at the centre of debate – with the Australian Labor Party making housing affordability one of its main campaigning issues.

With that in mind, we thought we’d take a look at how the election is likely to affect property prices and what it means for you if you’re looking to buy or sell.

The run-up to the election

Traditionally, once an election is called a period of uncertainty descends on the property market. Both buyers and sellers tend to take a ‘wait and see’ approach, meaning less stock hits the market and fewer people actively look to buy. This is especially so when a change of government is on the cards.

This state of affairs usually turns around after the result is known and normalcy returns to the market.

For this reason, in a year like this one, we usually advise people looking to sell to get their property onto the market now before the campaign begins. Otherwise, they may end up listing in a very different and potentially more difficult market.

ALP policies on negative gearing and CGT

That said, 2019 is also a bit unusual compared to election years passed. This time around, the Bill Shorten-led Labor Party – which most analysts predict will win the election – is focused on curtailing property price growth by targeted tax breaks aimed at property investors.

The ALP’s stated policies include reforming both negative gearing and the capital gains tax (CGT) discount – both of which make investing in property an attractive option compared to other asset classes. Negative gearing allows an investor to offset the losses they make on a property (eg interest repayments and depreciation) against their taxable income.

Meanwhile, the CGT discount lets investors pay tax on only 50% of any capital gain they make from selling real estate rather than 100% of the gain that they’d have to pay on other assets, so long as certain conditions are met. Under a future Labor government, the current 50 per cent capital gains tax break would be reduced to a 25 per cent discount – a move designed to make it easier for first home buyers to enter the market.

The ALP has made it clear, however, that existing property investors won’t lose any tax break they currently receive. Instead, it will only impact future property investors.

This news could have the effect of driving more property investors into the market in the lead-up to the election – especially when combined with APRA’s recent decision to scrap its cap on interest-only lending.

And that, in turn, could make 2019 a little different to other election years.

After an election

After the election, certainty tends to return to the property market and prices often start to rise. For instance, in the last federal election year 2016, Melbourne property prices rose 5.2 per cent in the final quarter after a July election according to the Australian Bureau of Statistics. In 2013, they also rose 2.7 in the quarter following a September election too.

Again, this year may be a little different depending on whether there is a change of government. We may well see a flurry of post-election activity, as investors either rush to take advantage of current pre-reform conditions in the event of an ALP win or enjoy the stability of the current tax regime if the Morrisson government is returned.

If you’re looking to buy or sell in Melbourne in 2019 get in touch with our team today.

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