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The Sydney property market has lost 11% in value compared to May, 2018, similarly, Melbourne market closely followed suite with a fall of 10% in value, according to CoreLogic data. The market uncertainty is further fuelled by the Labor's proposed negative-gearing policy, the Coalition's cut of permanent immigration intakes, stagnant wage growth for many years and un-affordability issue in Sydney and Melbourne.
The victory of the Coalition has certainly created positivity in the property market. Overall, seventy percent of Australian people are home owners; therefore, policies to stabilize the housing market are critically important to regain market confidence. In addition, the government knows that, with the total value of 6.7 trillion dollars (4 times of annual GDP), the housing market is one of the key pillars of the economy, which drives the building industry, housing related services (i.e. banking sector and legal services...) and stimulating household consumption/retail activities.
A few major policy changes are expected to come into effect in the coming months that will likely put a floor on the property market.
The government-funded first home buyers scheme will activate an addition of 10,000 first home buyers in the property market where they are only required to deposit 5% of home values, instead of 20%.
RBA has signalled that interest rate cuts are on the cards in the later months of 2019 given low consumer confidence, the turbulence of the housing market and the increased global economic and political risks.
In addition, APRA, the Australian Prudential Regulation Authority, has removed one of the lending restrictions. Currently, lenders are required to assess borrowers' serviceability using the higher of either the loan actual rate+2% or 7%. This usually ends up the lenders using the serviceability assessing rate of 7.25%, which is significantly higher than average 4% actual rate. The new policy will only require the lenders to use the actual rate + 2.5% buffer, which will reduce the serviceability assessing rate by 0.5% and likely boost the number of eligible borrowers and home loan sizes.
The combined effects of the above policies will almost certainly stimulate the property market's sentiment and transactions.
Fundamentally, the Australian economy has performed strongly over the last decades, recording a long-run economic growth at around 3%/year, higher than the average of OECD countries at 2.4%/year. Australia is strategically located in the dynamic Asia and Pacific region with 4.5 billion people and an increasing number of middle class consumers, where Australian-made products and services are sought-after (i.e. tourism, education and primary commodities), as well as high demand for Australian quality lifestyle (and properties). This will lay solid foundations for the long-term performance of the Australian property market and the economy.
Sources: Corelogic | ABS | Liberal Party | RBA | APRA | Trading Economics | Worldometers