Why are property investor numbers on the rise before election time?

With the election looming it appears that investors are racing to the market in order to beat changes to the negative gearing laws.

Or are they?

Tim Lawless, research director from Corelogic has stated that their index has reported a 1.6% rise across the capital city index over the month of May. Whilst this figure is slightly lower than that for April, which was up 1.7%, there is still very strong results being achieved and a reacceleration in the trend rate of growth.

We are currently experiencing a market were mortgage rates are low, and may become lower, which has a positive effect on buying, however there is an election on the horizon. Generally with an upcoming election we see a slowing down of activity and growth with buyers holding off to wait and see the results from the polls, however the reported figures are showing that investor activity is on the rise as well as valuation numbers on the increase.

The speculation is that this increase in investor activity is a result of investors rushing to the market to beat any changes to the negative gearing laws that may come into effect after the election. Is this a fair assessment?

The proposed changes to the negative gearing laws would be implemented by Labor, should they win the election. If this is the case they would not take effect until July 2017. So given that we don’t yet know the result of the election, and the fact that even if Labor does win it would be another 12 months before the new changes take effect, is it reasonable to say that this is the reason for investors rushing to the market? I would think it’s questionable.

However, having said that, there is still an uplift in investment currently being experienced in the market which may be due to the opening up of more favourable lending conditions with lenders more willing to lend to investors now that they are well under the 10 per cent speed limit on annual investment growth imposed by the Australian Prudential Regulation Authority (APRA) in December 2014.

Lenders under the 10 per cent growth limit are using what remains of their quota to offer better terms and bigger discounts than competitors exceeding the limit and unwilling to clamp down on their current offerings.

But how long will it last?

The second half of the year may well see a slow-down in the growth trend, given that yields are very low in the Australian housing market at present, affordability is becoming a big issue, particularly in Sydney and Melbourne, as well as lending conditions being tighter than they were 12 months ago, meaning it is a little harder to get a loan and the size of the deposit required is larger in some instances.

If you’ve been considering selling but wanted to wait until the result of the election thinking there are low levels of buyer activity, it may be worth bucking the trend. With current stock levels in Sydney fairly tight and the buyer activity levels on the rise, you may want to consider marketing your home for sale now to take advantage of favourable selling conditions.

 

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Why are property investor numbers on the rise before election time?