Federal election 2016: negative Shorten sets off property investment surge

Investors are rushing in to snap up properties ahead of the election to beat any ALP crackdown on negative gearing.

Investors are rushing in to snap up properties before the federal election in a bid to beat a possible Bill Shorten-led crackdown on negative gearing entitlements.

Economists and property executives have forecast an unexpected rebound of up to 10 per cent in 12-month house price growth to the end of May, with investors looking to lock in property under the existing negative gearing framework as a key contributor to the better than expected result.

“Usually in the lead-up to an election, people sit on their hands, but (the market) has definitely shown a re-acceleration and it’s not just this month, but the last month was also strong,” said Core Logic RP Data analyst Tim Lawless. “It’s potentially investors coming into the marketplace to beat changes, but we’ve also seen a recent interest rate cut and people could also be responding to the lower cost of debt.”

Investment loans reached a six-month high in March, the month after the Opposition Leader unveiled a plan to slash negative gearing entitlements across existing properties, billed as a way to boost housing affordability and the entry of first-home buyers into the market.

Under the plan, investors who buy properties ahead of the federal election will be able to keep their negative gearing entitlements, while investment purchases made from July next year onwards will be able only to access the entitlements on new-built property.

A number of leading property executives believe the proposal has pulled forward investor demand, with buyers keen to lock in investment purchases while they are still certain of the investment framework.

Century 21 chairman Charles Tarbey said: “If I was an investor, I’d think that ‘Yes, now is the right time to buy’ ... a change like that would definitely spur me on.”

Economists agreed, noting that investor activity was on an upward trajectory, despite a tighter lending environment designed to dampen their participation. REA economist Nerida Conisbee said: “The lending figures to investors would suggest that (investors) are coming back to the market … banks have been very restrictive on lending and the fact that lending growth is still happening shows that they’re active.”

Rival economist Andrew Wilson agreed: “There’s a lot of data pointing to the fact that in the Sydney market, there’s a lot of speculation going on and that investors want to get ahead of any changes.

“There's been a big jump in the proportion (of lending to investors) and 46 per cent of all lending to investors was in NSW. It looks like they’re heading back in.”

Property investors said they felt like they couldn’t wait. Property investor and developer Matthew Bond began his search for entire apartment blocks throughout Brisbane in the week after Mr Shorten announced his plan. Three months on, the Brisbane-based executive is awaiting the outcome of two offers, and is still scouring suburbs including New Farm, Teneriffe and Spring Hill in inner Brisbane for entire apartment blocks to build his rent-roll while existing properties still qualify for negative gearing treatment.

“The market is hot, which means we want to buy existing apartments and hold them, maybe to develop later,” Mr Bond said. “And we want to negatively gear them, which means we have to buy them now. And I want to make the right decision, I don’t want to rush in, but I’m afraid I’ll get caught out if the law changes and I haven’t bought anything.”

Investor lending throughout March spiked to its highest level since August last year, according to the Australian Bureau of Statistics, which revealed investor loans comprised about 55 per cent of all lending activity. The value of lending to investors in March rose 1.1 per cent during the month, while the value of lending to owner occupiers fell by 0.7 per cent, and the number of loans granted to first-home buyers fell to hover around its lowest level on record.

Steep rises were recorded in loans made for both investment property construction and investment property purchases, with lending for the construction of homes to be rented or resold rising $142m, or 10.9 per cent, and lending for the purchase of investment properties rising by 0.2 per cent.

The results have come in spite a raft of measures that were expected to put a lid on turnover and new listings.