Rents to rise, house prices to decline under Labor’s negative gearing policy: SQM

Discussion in 'Property Market Economics' started by standtall, 21st Mar, 2019.

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  1. standtall

    standtall Well-Known Member

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    Rents to rise, house prices to decline under Labor’s negative gearing policy: SQM

    SQM modelling suggests rents might go up as high as 22% under Labor's negative gearing policy while prices will fall by up to another 16%.

    I know most investors here (including myself) would like prices to go up because that's what enables us to keep growing portfolios but (according to RBA), we all have too much debt and increased rents may not be a bad thing as they will 1) help everyone pay down debt faster 2) bring the focus back on yields vs capital gains that fuel speculation.

    Ofcourse I am not fully confident in either the modelling or Labor's ability to not mess things up even further.
     
  2. gary176

    gary176 Well-Known Member

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    The same SQM that predicted 8% price rise in Sydney for 2018....I will put their forecasts in the bin....

    Reality is that if tighter credit continues and economy keeps getting bad...we will see more price declines and lesser rents...
     
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  3. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    Flipping existing properties to each other doesn't increase supply,
    Rents are a function of demand and supply,
    with the number of new dwellings about to be completed this year and next, Syd/mel are sitting on oversupply for at least next two/three years,
    So even with NG reform in play difficult to see rents rise in Syd/Mel.

    is he is talking about rising rental yields?
    which is possible even with falling rents due to due to falling prices.

    Sydney vacancy rate is currently sitting at decade high rate of 3.7%
    Sydney rents are close to what it was in 2016.
     
    Last edited: 21st Mar, 2019
  4. AlexV_Sydney

    AlexV_Sydney Well-Known Member

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    ... and wage / other expenses growth
     
  5. Blueskies

    Blueskies Well-Known Member

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    I have to agree with the general gist of what the
    article is saying. The percentages probably won’t be right, and there are lots of other variables in play, but downward pressure on prices and higher rents has to be the natural outcome doesn’t it?

    Labor’s policy discourages property investment, plain and simple. Less investment properties translates to higher rents for the shrinking pool of remaining stock.

    Less investors in the market means less competition to buy hence lower prices.

    I also don’t think their “incentives” to buy new stock will make any meaningful difference either, Investors in freestanding homes particularly favour establish dwellinngs. you can’t tell me suddenly all those investors will switch to buying new off the plan apartments and new homes, so there will be less new supply coming online in absolute terms as well.

    I think the other thing is that these kind of changes never work in a smooth linear fashion. The market will get distorted in different ways. In some areas, these changes will probably be a good thing. You would expect to get less interest in investors buying highly negative geared existing homes, which generally tend to be competing with owner occupied buyers anyway, so prices might fall and yields rise, But I suspect it will put a lot more pressure on higher yielding property, so in some areas the opposite will happen with prices rising and rental yields falling.

    The only thing you can say for sure is that when government meddle in markets there are always unexpected consequences.
     
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  6. MyPropertyPro

    MyPropertyPro REBAA Buyer's Agents Sutherland Shire & Surrounds Business Member

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    Unfortunately it appears to be what Labor wants - falling prices to make Sydney and Melbourne “more affordable” for FHBs.

    What about the thousands of other markets around the country you ask? Well, they haven’t asked as I’m not sure they’ve thought of it...

    - Andrew
     
  7. Someguy

    Someguy Well-Known Member

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    It will help those who have been responsible especially the young staying with mom and dad to save money but reality is even if prices drop further majority of renters will remain renters. Policy may just force them to rent in a less convenient area
     
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  8. gman65

    gman65 Well-Known Member

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    There is definitely a generation of renters..not necessarily just by expansive houses, but expensive lifestyle choices. This won't change.

    I know any reduction in supply will have me raising rents at least 20% to make up for all the extra costs I've had to pay out of my own pocket over the last few years... It just may take a few years for this to flow through, but it will come.
     
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  9. marmot

    marmot Well-Known Member

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    There will be no shortage of people in Perth that would like to sell their own mother to see property prices go up and might be tempted to re-elect a LNP government.
    For many that are heavily negatively geared ,and sitting on interest only loans, the last 10 years has been a bit of a disaster, especially if they were unable or unwilling to pay off the principle of the loan.
    In the old days you just payed off the principle of the loan,by the time you got to the 10 year mark and realised it was a dud , the place was virtually paid off.
    So there was no pressure to sell.
    These days its the exact opposite, especially for those that have not touched the principal of the loan, the losses turned into really big losses as rents plummeted , with the one saviour being interest rates falling significantly at the same time.
    The average net rental loss in Perth is still around $10,000 for negative geared properties,so there is no shortage of people trying to sell.
     
  10. Waterboy

    Waterboy Well-Known Member

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    Denial is Not a River in Egypt
    But if rents rise, would that not make property investing more attractive, thereby increasing demand for properties ergo higher prices?
    (ceteris paribus)
     
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  11. Illusivedreams

    Illusivedreams Well-Known Member

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    Hence the cycle.


    Construction starts are slowing. Market tightening occur. Demand increase price rise. Developer build too much prices ease market slows......and so we go on and on on on on
     
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  12. TSK

    TSK Well-Known Member

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    Modelling is only as good as the assumptions made and data used. Seems to be a bit of debate on the assumptions. Like many reports, they are often made with a particular agenda or bias.
     
  13. Angel

    Angel Well-Known Member

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    Why would anyone with a brain and a pulse want to buy into residential housing investment any more? The costs to landlords keep rising and the state governments keep dreaming up ideas on how to make it ever more costly to us. They are starting to demand all properties offered for rentals will have to install solar, roof insulation, new wiring and other things. In Qld we will soon get to spend a couple of thousand dollars for hard-wired smoke alarms in every house. We get to repair our properties at our own costs after pet owners vacate leaving torn carpets and curtains everywhere and not enough bond to cover the damage. Then they will want us to get annual meth testing and asbestos testing..........
     
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  14. Angel

    Angel Well-Known Member

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    Why would anyone want to buy new housing at its ridiculously high prices in order to rent it out, and know that its price will go down after you buy it? The reason there have been so many people buying IPs in the past 30 years is because we saw unprecedented house price increases and wanted a piece of that pie. Labor's policies are to ensure that pie no longer exists.
     
  15. Deck

    Deck Well-Known Member

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    Large build to let investment, the small landlords will leave the market, they were not adding much supply anyway
     
  16. TSK

    TSK Well-Known Member

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    Its a pie that we perhaps need a diet from...only got really fattening with changes to capital gains tax changes and cheap credits.

    Also banks are pretty happy to lend bugger all deposits and reasonable rates.
     
  17. DAZ79

    DAZ79 Well-Known Member

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    You'll only get it if your competitors are not offering a better price for the same product.
     
  18. DAZ79

    DAZ79 Well-Known Member

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    Its interesting.

    How many Perth property investors with third degree burns are waiting for an upturn so they can sell.

    And what happens when they bring the properties to market? Likely stomp on the green shoots.

    Unless its against a backdrop of better economic growth/ increased migration etc

    So its as much about the general economic cycle as it is about a 'property cycle'
     
  19. Fargo

    Fargo Well-Known Member

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    No, increasing costs are reducing net yield from rent,. There is now a divergence from inflexion point.. increasing land tax , insurance, council rates, water rates, fees levies, and new levies Rents cant compound at the rate expenses are. Return on capital needs to be obtained by leveraging into other income and growth producing assets. Residential property has become a place to safely preserve your capital not to produce wealth creating rent. Circumstances that lead to increasing rent will lead to increasing interest rates, and expenses furthering divergence from inflexion.
     
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  20. Eric Wu

    Eric Wu Well-Known Member Business Member

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    when happened last time with Labor removed NG? not only NG was reinstated, but also CGT discount was introduced.

    history might repeat it self.