Scenario analysis
If you've been following along here over the past week or so, you'll have seen me
discussing a few property market scenarios for housing market prices under the proposed new tax regime (e.g. rents rising by 10 per cent and prices falling 5 per cent, and so on).
Louis Christopher of SQM Research is a leading property market economist and put out some interesting
research notes today here.
Firstly, as noted, gross rental yields will have to rise by at least 50 basis points according to the most credible available modelling, though Louis notes that this figure could be as much as 50 to 150 basis points for houses, but more like 20 to 90 basis points for units.
I've copied a few of the key points from Louis below:
Here are some more of the high-level assumptions that Louis has fed into his models.
All of which leads to a 'base case' scenario of house prices falling by12 per cent, and unit prices falling by 5 per cent (with rents rising by a similar quantum).
Under this stylised model rents would need to rise by as much as 27 per cent for houses - which seems unlikely - and 11½ per cent for units, for nominal housing prices to remain broadly flat.
Obviously if nominal prices do fall then new housing supply will ultimately drop away, leading to a greater undersupply, which would eventually support the market cycle forming a bottom.
There are some other factors which could impact this - for example, the government may well expand its package for first homebuyers, which would support the bottom price quartile of the market...but not so much the top.
Asking prices to date
It's obviously very early days, but this thesis appears to be somewhat playing out so far.
Asking prices for houses are now down -0.7 per cent over the past month nationally, according to SQM Research's asking property prices indices (unit asking prices have continued trending higher, for now).
Source: SQM Research
And, as you might expect, this has been mostly driven by Sydney, where asking prices for houses are down by -3.3 per cent over the past 3 months, although even Perth has seen a decline in asking prices.
Source: SQM Research
It will be interesting to see how it plays out, but activity levels have certainly dropped away pretty quickly so far.
ASX gains curbed
Changes to capital gains tax impact all asset classes, and -5 per cent has also been clipped off the ASX 200 index over the past month, although the market is still higher over the year.
If you'd like to discuss what the Budget changes mean for your strategy or portfolio, shoot me an email pete@allenwargent.com
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