Australia’s property market has the right catalysts for a rebound: record low interest rates and investor-friendly government

Record low interest rates and the re-election of a business friendly government will provide a boost to a slumping Australian property market, according to market observers.

This month the Reserve Bank of Australia embarked on its first rate cut in three years, slashing the cash rate to a historic low of 1.25 per cent. The surprise re-election of the Liberal/National Coalition, which means a retention of the current investor-friendly policy on capital gains tax and negative gearing, is also injecting renewed optimism into the property market.

“There is greater confidence among buyers, particularly investors who were concerned about the impact of the opposition’s policy for the partial removal of negative gearing and reduction in capital gains tax discount,” said Sarah Harding, partner and head of residential for Australia at Knight Frank.

She said that the easing of lending restrictions imposed by the Australian Prudential Regulation Authority, the financial services regulator, and lower interest rates will provide a stimulus to the residential property market, encouraging both buyers and sellers to become more active.

The Labor Party, which was tipped to win the election, had planned to the raise capital-gains tax and reform negative gearing, which would have led to higher rents as it would have eliminated offsets for a property owner’s losses through tax incentives.

The prospect of a Labor Party victory had been partially blamed for the sluggish Australian property market, along with other property cooling measures already in place.

Michael Clarke, a director at Sydney-based Clarke and Humel, said that although prices in Australia had declined by 14.7 per cent since peaking in 2017 the market was turning around. He pointed to the results of an auction on June 8 where some 62 per cent of properties were sold, a big improvement from lows of around 40 per cent previously.