Find out how the Property Market is affected by last weekend’s change of Government
Government policy lies at the epicentre of all market activity in a modern nationstate. Based on their ideological persuasion, different Governments will approach the management of the various industries within the national economy in different ways.
Australia’s mortgage industry has been entangled in a bit of an unrealised paradox over the recent few months.
On the one hand, there have been two unprecedented interest rate cuts by the Reserve Bank of Australia, the latter of which slashed the official rate to a record 2.5% in order to stimulate the economy and encourage potential buyers and investors to take out home loans.
On the other hand, the approval process for loans has been far slower and much stricter than the standard norm in recent years. Many have attributed this disparity to a generic lack of confidence on the part of the banks to lend money to potential buyers, due to economic uncertainty.
It is commonsensical that if demand increases while supply decreases, prices will skyrocket. This explains why property prices have not tended to go lower while interest rates have.
If trends were to have continued on this way, the RBA’s recent interest rate cuts would have had the counter-productive effect of actually ending up discouraging investment in property as opposed to stimulating the economy by encouraging the same on a long term basis and it would have been very difficult for the market to extricate itself from such a plight.
There have been at least two identifiable reasons for the supply side of the market to meet with the demand side, in this instance.
First, much of the demand for new property investments since the RBA’s interest rate cuts have been in inner city areas where it takes much longer to generate supply. Combined with the incidence of recent failures, banks often feel reluctant to lend to property developers, which then slows down the entire process.
Second, the Federal Election we just had over last weekend was up and coming over the past few months, with a change of government looking imminent in the polls. As a result, the banks have not yet been able to ascertain with confidence what the economic climate would be like once Australia’s political circumstances change after the election.
With the change of government having taken place over the weekend, we can expect to see a surge in plant investment because political uncertainty had, to date, held investors back, resulting in the August rate cut having little effect despite it being a great time for home buyers to start borrowing.
Add to this, that several of the major taxes that have been a focal point of contemporary debate in Australia politics are promised to be scrapped. Should this happen as planned, it would give the national economy an overall boost and help create environment that is conducive to investment in a range of portfolios, including the property market.
At SwitchMyLoan.com.au we look forward to helping all of our clients in the new market landscape that is about to ensue from the weekend’s Federal Election outcome.
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