Mar­ket’s post-elec­tion bounce

Western Suburbs Weekly - - Business - Troy MacMil­lan on De­sign­ing Wealth Troy.MacMil­lan@twd.com.au

Q: We were won­der­ing how the elec­tion may af­fect our prop­erty port­fo­lio. Could you please ex­plain? Bill and Char­lotte – West Perth A: This should re­ally be a two-part ques­tion.

First, how does the pre-elec­tion cam­paign im­pact your prop­erty port­fo­lio and sec­ond, what will hap­pen to your port­fo­lio af­ter the elec­tion?

In gen­eral, an elec­tion cam­paign tends to cre­ate even more un­cer­tainty than usual for in­vestors.

As a re­sult, the mar­ket can be neg­a­tively im­pacted in the run-up to an elec­tion as in­vestors adopt a more cau­tious than usual ‘wai­t­and-see’ ap­proach to their in­vest­ments.

His­tor­i­cally, the mar­ket tends to be more buoy­ant af­ter an elec­tion, whether there is a change in gov­ern­ment or not.

This can most likely be put down to in­vestors ei­ther ap­pre­ci­at­ing the sta­bil­ity of a re-elected gov­ern­ment – or be­ing in­vig­o­rated by the pos­si­bil­i­ties pre­sented by a new gov­ern­ment tak­ing of­fice.

So that is the gen­eral trend for elec­tions, but what about the im­pact of this par­tic­u­lar elec­tion on prop­erty prices?

With La­bor promis­ing a sig­nif­i­cant change to the neg­a­tive gear­ing laws if they win of­fice, the prop­erty mar­ket is likely to be more volatile than usual pre-elec­tion, par­tic­u­larly if La­bor stays ahead in some polls.

In La­bor’s pol­icy, only firsthome buy­ers would be able to claim tax ben­e­fits from neg­a­tive gear­ing of ex­ist­ing prop­er­ties.

In­vestors would only be able to claim for new prop­er­ties. How­ever, one of the key com­po­nents of La­bor’s neg­a­tive gear­ing pol­icy is that ex­ist­ing ar­range­ments will be ‘grand­fa­thered’ – or ex­empt – from the change.

While there has been a great deal of de­bate about whether the neg­a­tive gear­ing changes will have a pos­i­tive or neg­a­tive im­pact on the long-term health of both the prop­erty mar­ket and the econ­omy over­all, the grand­fa­ther­ing pro­posal should prompt a great deal of ac­tiv­ity in the prop­erty mar­ket in the short-term, with in­vestors look­ing to en­ter the mar­ket so they can con­tinue re­ceiv­ing the tax in­cen­tives cur­rently avail­able.

If Mal­colm Turn­bull wins, the like­li­hood of ma­jor changes to prop­erty in­vest­ment reg­u­la­tions, and there­fore the in­cen­tive for pre-change ac­tiv­ity, will be sig­nif­i­cantly di­min­ished.

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