RiskWise Property Research CEO Doron Peleg has said the leadership spill that put Scott Morrison in the top spot has increased Labor’s chances of winning the upcoming election to 80 per cent.
Mr Peleg claims the accelerated property price reductions that have occurred over the last quarter since this upheaval are tied to Labor’s likely win and subsequent implementation of changes to negative gearing and capital gains tax.
“While tighter credit restrictions and other factors have contributed to the current downturn, the significantly increased likelihood that Labor will win the next federal election – which will be called on or before May 18, 2019 – and make changes to negative gearing and capital gains tax has definitely been a contributing factor to price reductions,” he said.
“In fact, these price reductions have accelerated over the last quarter and we have seen that auction clearance results are very low.”
Mr Peleg argues that although there was already a decline in prices before the leadership spill, as shown in CoreLogic data, such a drop was not out of the ordinary and mirrored previous downturns.
“At that point of time it was nothing we hadn’t seen before and was in line with previous downturns,” he said.
According to CoreLogic data, property values in Sydney have declined by 5.6 per cent their peak in July last year, which is comparable to the 12-month fall that happened in the downturn of 2003-2006 and the drop during the GFC.
“This is similar to AMP Capital’s view, who while initially expecting falls of 15 per cent in Sydney and Melbourne spread out to 2020 (about 5 per cent per annum), have revised their estimate to 20 per cent falls due to tighter credit restrictions and fears of low capital growth due to changes in the tax,” Mr Peleg said.
“According to AMP, this would take average prices back to first half of 2015 in those two cities. Nationally they estimate a fall of nearly 10 per cent to 2020 – previously expected to be 5 per cent.”
Auction rates have also noticeably fallen, with Sydney recording the worst preliminary clearance rates in a decade last week at 47.7 per cent. Melbourne also experienced a low of 50.5 per cent.
Mr Peleg said such declines indicated poor consumer sentiment towards the residential property sector, which is reflected in figures released from Westpac’s Melbourne Institute Consumer Sentiment Index
“The ‘time to buy a dwelling’ index has fallen 5.7 per cent in the past two months,” he said.
“From that point of time [the leadership spill], we have seen a significant reduction in consumer sentiment in the residential property sector and major drops in the auction clearance rates.”
Mr Peleg said consumer expectations on price have also dropped 7.4 per cent in the month of October, reaching their lowest ever. Victoria recorded the worst fall in price expectations, a phenomenon likely attributed to Melbourne’s falling house prices.
He also highlighted the risk posed to material prices, which has correspondingly increased. He put this increase down to tighter lending standards and buyer expectations for price reductions.
“So, we can see with the increased likelihood of Labor winning the next election, it has already impacted the housing market,” Mr Peleg said.
“These changes are very likely to impact the market from now until their full implementation and we won’t see any improvement until the market has adjusted to the new lower prices and reduced investor activity.”