Elections bring about differing agendas and policies from prospective political parties, which can impact on people’s day to day life, but also on their property investment strategies.
Elections can create uncertainty for both sides of a property transaction, with many buyers and sellers holding off making decisions until the lay of the land is more certain.
Victorian property investors have two elections to contend with this year. Both the Federal election mid year and the Victorian election, scheduled for November.
Both elections come at a time when the national property market is softening after two years of stella price growth.
Interest rates are tipped to rise in the future, which will make some property owners and prospective purchasers nervous. The elections could well add to that cautiousness.
It’s timely to explore how elections have impacted the market in the past, and whether the upcoming elections will affect the property market, either negatively or positively.
While each election is fought over different issues and by its nature is unique, there are some common trends.
Often auction rates can fall in the lead up to an election, with vendors looking to minimise any disruption to their sales campaigns – and hold off until the government is confirmed.
But that’s not always the case.
In the Federal election in 2019 auction numbers actually increased in the lead up to the May 18 vote.
There were a number of reasons for this. But property was quite a hot topic. One of the key issues being debated at the time, was the opposition Labor Party’s proposed changes to negative gearing and land tax.
These were set to be introduced at the beginning of January 2020, should they have been elected into government.
The majority of polls at the time suggested that it was likely to be a Labor victory. And as a result, and with those deadlines and timelines on the horizon, there were a number of vendors that decided to put their properties on the market ahead of the election, particularly if they were properties attractive to investors.
This was done in an attempt to try and take advantage of those that would still be entitled to negative gearing benefits, up until the end of 2019, in the hope that there might be extra levels of competition, and premium prices.
It’s interesting to note that even after the election result, the market grew from strength to strength, with the reasoning being that the Coalition victory was a pro-property investment election result, that gave the market further confidence.
So even when we did hit the uncertainty of COVID in early 2020 – once we figured out how to live with it – the property market continued to build.
There was a similarly property focused Federal election back in 2016 when at that time, the Labor Party was again talking about making changes to negative gearing. So again property was a considerable issue, but the market responded very differently this time around.
Leading up to the election in May, numbers from a supply point of view were as much as 30 per cent down from the same time in 2015. So there was certainly a far more cautious approach taken to that election.
Some of it was reasoned around the fact that there also wasn’t a great deal of confidence in the market.
In the 2018 State election in November, the property market was quite soft considering the busy Spring selling period.
However, the Spring as a whole was definitely down on usual levels, as we weren’t seeing the same level of supply that we had in previous years. The election only added to this hesitancy, with many holding back to gain greater clarity.
At the time we had the likely return of the Labor Government, but there were property issues that raised debate.
Property groups such as the REIV and the Property Council, expressed discontent about the introduction of 14 new property taxes in different forms over the preceding years, which they said would negatively impact the property industry. They also raised concerns about further increases to stamp duty in the future.
As a result, again, the supply levels were certainly quite soft and the clearance rate was comparatively weak as well. However, the property market in 2018 was already quite soft, so the election wasn’t the sole impact on sentiment.
That being said, in hindsight, it was clearly a great time to buy. It brings to mind Warren Buffett’s saying: It’s wise for investors to be fearful when others are greedy and greedy when others are fearful. Obviously, that was quite apt for the time, given the strong price growth seen through 2019, 2020 and 2021.
As both elections draw closer, Victoria’s property market continues to recalibrate after surging prices and strong demand over the last two years.
Interest rates are tipped to rise in the future, which is seeing a re-balancing of supply and demand.
Despite that, home affordability is a major issue at both the state and federal levels.
From a Federal perspective, there hasn’t really been a lot of specific property policy discussed this time around, so it’s not looking like it’s going to have the same level of impact that it may have had in previous years.
At a state level, the major property topic has been the Government’s proposal and then scrapping of the 1.75 per cent levy on new property developments.
Developers expressed concern that this could increase the cost of buildings, which would therefore be passed on to buyers, and exacerbate home affordability issues. However, as it was scrapped, it’s no longer a deciding issue in the lead up to the election.
Take home message
From a buyer’s point of view, unless a change of government could directly impact your financial circumstances – through lossed wages or employment – an election on the horizon really shouldn’t change your approach to the market.
If you’ve found the right property, have your finances organised, and are ready to make the lifestyle change, then the elections shouldn’t be a major factor.
From a vendor’s perspective, it’s imperative to avoid your sales campaign being directly impacted by the elections. Obviously that means not having your auction on an election weekend, but if possible, not even within the sales campaign advertising period.
As always, you want to minimise any distractions and diversions away from your campaign, to maxmise interest and attendance levels.
Overall, the two elections this year are unlikely to have a major impact on property transactions, compared to previous years.
Issues such as interest rates, and political and economic issues stemming from the Ukraine conflict are likely to be more impactful – not just on Melbourne’s property market, but for Australia and in the latter, the globe more broadly.