LJ Hooker’s 5 key events to expect in 2019

Polling points to a change in government in 2019, says LJ Hooker’s head of research, Mathew Tiller.

“As constituents did in the Wentworth by-election, analysts believe the public will again queue up at polling booths to punish the Coalition for an unstable year of leadership,” he says.

This will have a marked impact on property, he adds, since Labor is taking the same negative gearing and capital gains tax policies to the election it proposed at the 2016 one.

“Over the last three years, opponents to the policy have said it will turn investors away from property, jeopardising the availability of rental stock and making tenants compete for remaining rentals.

“Research undertaken by LJ Hooker has shown negative gearing is an important part of the public’s investment strategy, with a poll of 1,700 landlords indicating 31 per cent would sell some or part of their property portfolio if negative gearing was abolished or restricted.”

Mr Tiller says that Labor’s policy originated in 2015 at the height of property growth in Sydney and Melbourne.

At that time, property values grew by around 15 per cent and 10 per cent, respectively, over a 12-month period.

“But over the past year, both cities have seen prices decline, by 8 per cent in Sydney and 5 per cent in Melbourne.

“Elsewhere, Brisbane and Adelaide recorded modest gains while Perth has neared the bottom of a prolonged downward cycle. Hobart and Canberra are the only capital cities that made considerable gains.”

Mr Tiller also makes the point that removing negative gearing creates less demand for real estate-based employment.

“The real estate industry would require fewer strata and property managers, and rental properties require regular maintenance to be compliant and a fall in demand would impact tradespeople, handymen and other service providers.

“Interfering with how people choose to invest while the market is self-correcting could pose a major challenge for the wider market in 2019.”

2. More of the same from FHBs

First home buyers have been a good news story of 2018, and with investors likely to feel the heat most from the royal commission fallout, Mr Tiller expects to see them out in force again in 2019.

“Data from the Australian Bureau of Statistics shows FHB activity rose by 14.9 per cent in the year to October,” he says.

“Indeed, not since 2009 have more FHBs been involved in the marketplace.”

Mr Tiller says that FHBs rose as tighter lending restrictions — a product of the Royal Commission into Banking, Superannuation and Financial Services Industry — made it difficult for investors to compete for the same sort of entry-level stock.

“The final Hayne commission report will be handed down in February, with a federal budget and election following soon after. Lenders will no doubt be chastised in the final report, as they were in the interim volume.

“We expect investors will continue to feel the immediate fallout from the report which — along with tightened residential yields — will make it harder for them to maintain real estate within their wealth strategy.

“Consequently, FHBs will have less competition at auctions around the country, enabling more to make the leap from renting to owning.”

3. Global forces, regulators pushing up the cost of money

Buyers and investors have become accustomed to the monthly RBA meeting passing with no fanfare, says Mr Tiller. It’s been 28 months (August 2016) since the board changed the official cash rate.

“However, the RBA’s influence goes only so far, with several of the big four lifting their variable rates independent of the RBA’s decision making since then.

“Global forces — Brexit, the controversial Trump presidency and the ambitions of China — will cause economic reverberations around the world at the same time that global central banks are increasing cash rates.”

Mr Tiller says that these two things will combine to push up the costs of financing for Aussie banks which will, in turn, increase mortgage expenses here in our local markets.

He adds that the Hayne royal commission will also conclude and release recommendations. This may see lending criteria tighten again, forcing borrowers to jump through more hoops to get a mortgage.

4. Users tap the digital marketplace

Mr Tiller says that technology is playing an increasingly greater role in our lives every year.

“We no longer need to go to the shops to buy clothes, apps allow us to invite complete strangers to do odd jobs around the house for the right price and we no longer need to queue at the travel agent to book a holiday at the Gold Coast,” he says.

“So, if we don’t even need to deal with a bank teller to switch money between our accounts, how come it’s so hard for vendors to find out what’s happening with the sale of their property?”

Mr Tiller says that we expect more from technology in every aspect of our lives, and that 2019 will be the year in which real estate sets a new benchmark in this space.

5. Regional radar

Despite a correction in prices, buyers will continue to look outside the capital cities for better value, says Mr Tiller.

“Proximity to Melbourne’s corporate hub, mixed with the coastal lifestyle and its own transition from a blue-collar to white-collar economy has underpinned Geelong’s fortunes, with the median house price increasing by 16.6 per cent to $579,000 over the past 12 months.

“The introduction of new infrastructure to support the Commonwealth Games on the Gold Coast this year saw the median house price rise to $655,000 in November, up from $627,000 at the same time last year, according to CoreLogic, while the Sunshine Coast median increased by 7.7 per cent.”

He also says that government encouragement through policies will increase demand in regional centres.

“For instance, the Andrews government’s first home buyer grants encourages renters in Victoria to make the transition to ownership by building in a regional area with a $20,000 incentive,” says Mr Tiller.

“In NSW, Premier Gladys Berejiklian has flagged incentivising students which are a part of the state’s $11 billion international education sector to head to universities outside Sydney.”

He adds that markets to watch in 2019 will also include the resources regions.

“In 2018, the mining state of WA posted its first net population growth figures for several years. It had an immediate impact on the rental market in Perth, with the REIWA reporting a 3.4 per cent vacancy rate in the September quarter — the best performance for the state’s investors since March 2014.

“Perth is a launchpad for Fly-In, Fly-Out workers in the iron ore hub of the Pilbara. The Pilbara’s median house price has increased by 4.3 per cent to October, and whilst it has struggled since the mining boom, the local employment opportunities bode well for a continued property recovery in 2019.

“Central Queensland was likewise a former darling for property investors, with areas like Moranbah and Dysart returning massive rental returns as mining propelled the Queensland economy. Production is starting up again and the wider Mackay market posted a 12.6 per cent increase in its median house price.”

Consequently, Mr Tiller predicts that many regional markets will outperform their capital city counterparts over 2019.