6 June 2016

Election Jitters And Cash

How Does The Election Affect Your Property Portfolio?

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 ‘wait-and-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. Basically, no matter what the result, investors appear happy to have the uncertainty behind them and become more active in the market.

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 the polls (the mid-May Morgan Poll has Labor comfortably ahead 52.5% to 47.5% on a two-party preferred basis).

In Labor’s policy, only first-home 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 Labor is successful in the election, the changes are due to take effect from July 2017.

Of course, this is largely dependent on Bill Shorten’s party maintaining their current lead in the polls, and then winning the election. If Prime Minister Malcolm Turnbull’s LNP can gain popularity and hit the lead in pre-election polls, the likelihood of major changes to property investment regulations, and therefore the incentive for pre-change activity, will be significantly diminished.

Published in The West Australian, Monday 6 June 2016