Market Update

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Consumer sentiment has been overwhelmingly negative in recent months, however there are signs that this is changing, and with the Federal election over there are several drivers to a more positive property market.

For investors, the continuation of the status quo for negative gearing and capital gains tax provides the certainty that is needed for property investors.

Constraints on finance approval have been evident in the extended approval times and the difficulty many buyers have experienced in qualifying for their required level of funding. Following the Federal election APRA has reduced the loan serviceability criteria from 7% to 2.5% above the RBA lending rate, a clear recognition that the current low interest rates are expected to continue. This means that going forward loans will now be assessed at up to 1.25% lower than previously. The RBA has also cut the cash rate twice since the election to a new historical low with further reductions expected until the RBA inflation and employment targets are met.  This could increase a borrower’s maximum borrowing capacity considerably. Market commentators are predicting that APRA’s cut plus the two RBA rate cuts will boost house prices 5% to 10% over the ensuing 12 months.

While subdued consumer sentiment might be considered negative for the property market, the strong sentiment of the recent boom period presented other obstacles to buyers with keen competition from other purchasers and the potential for a large price gap for upsizers.

Low unemployment, historic low-interest rates, reductions in the RBA cash rate and relaxation of the APRA loan serviceability criteria, combined with the market correction in property prices and certainty regarding negative gearing and capital gains tax post-election all point to improving sentiment in the property market.