Market’s post-election bounce
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.