NOW that Labor’s housing tax bill has passed, it is time to take stock of where the market sits and what is really happening on the ground in our region.<\/p>\n
To find a baseline, I chose the first weekend in February, when the sun was out and our region was at its best. Kids were about to go back to school, the holiday period had just finished and we had an aspiration.<\/p>\n
That weekend (1 February), we had auction clearance rates of 63 per cent across the region. There were 1,911 properties on the market, with 49 sold at auction and 250 sold in private sale.<\/p>\n
In stark contrast, the weekend just past (28 June), we had auction clearance rates of 52 per cent. There were 2,140 properties on the market, with just five sold at auction and only 36 by private sale.<\/p>\n
Weekend to weekend, there were 214 fewer private sales and 44 fewer auction results. That is catastrophic!<\/p>\n
Interestingly, the days on market have reduced marginally by 6 per cent, driven by many properties that have been on the market for 60 days or more being withdrawn rather than sold.<\/p>\n
The mix of where these properties are held has changed.<\/p>\n
In February, only the coastal markets retained stock for over 100 days on market: Torquay (201) and Ocean Grove (168).<\/p>\n
But this has now changed and we are seeing inner suburbs such as Belmont (118), Geelong (166), Highton (106) and Armstrong Creek (127) all retaining large volumes of properties for sale.<\/p>\n
Overall, stock levels are up 8 per cent and days on market across these suburbs have increased.<\/p>\n
These figures provide a very bleak picture of a buyer retreat, driven by a combination of the average variable interest rate being 6.35 per cent, a cash rate at 4.35 per cent, mean inflation at 3.6 per cent, and the consumer sentiment index falling to 80pts, well below the long-term average of 100pts.<\/p>\n
This is not to say properties are not selling.<\/p>\n
Buyers are becoming more selective, more price-sensitive and less discretionary. Most real estate agents say this downturn is far worse than the early months of Covid, when we were mandated to stay home.<\/p>\n
The good news is that our clearance rates and sale rates are still better than most of the rest of the country.<\/p>\n
Sellers thus far have adjusted to the market, but we have not seen any clearance sales.<\/p>\n
This is not a crashed market, and it will never be. We are in an adjustment period.<\/p>\n
What I predict we will start to see over the next couple of months is \u2013<\/p>\n
Return of stability: now that the bill is passed, debate will swing to the Victorian election and state issues. This will take some focus off the property market. The fear factor will pass.<\/p>\n
Rents will increase: history warns us when negative gearing was removed between 1985 and 1987, rents rose sharply in supply-constrained cities. Today, the supply shortage is national, not localised, so the rental crisis could worsen.<\/p>\n
The grandfathering provisions: will create an unintended lock-in effect, giving existing investors a strong reason to hold rather than sell, which could actually reduce stock.<\/p>\n
New development will boom: new builds remain fully exempt from both changes. This presents an opportunity to get planning permit developments underway in our Geelong CDB. A strong rumour is already circulating around town that one particular development has sold 75 per cent of its apartments off-the-plan directly to investors since the tax changes were first mooted in the last few months. We may finally see some cranes on the horizon.<\/p>\n
Lastly, I note the small changes the Greens made to the tax reforms to get the legislation through parliament, including the ban on self-managed super funds borrowing to buy residential property.<\/p>\n
This makes absolutely no sense. It runs against what the tax changes were trying to do. It’s not a ban on investment; it’s a ban on nest eggs.<\/p>\n
Sophisticated investors have never bought or sold large numbers of properties in SMSFs. Banks couldn’t lend to them anyway, and you cannot release the equity or maximise leveraging under the existing SMSF lending rules.<\/p>\n
So this change has no impact on investors. It simply affects the less sophisticated who had built a small nest egg to give them some comfort in retirement.<\/p>\n
It will have little impact on the overall market, but industry groups won’t challenge this amendment as it doesn’t impact them. It will get very little noise, but it is unfair.<\/p>\n
For now, this is the state of play. The rules change, the goalposts move, but the game stays the same.<\/p>\n
Property will continue to remain the most reliable long-term Australian investment asset.<\/p>\n
GARETH KENT<\/p>\n
Director,<\/p>\n
Preston Rowe Paterson<\/p>\n