If finance markets and foreign investment were not enough to turn buyers away, throw in taxes and politics for a real mess.
We've said it before: it's no puzzle why buyers are reluctant in the current market. But we must wonder why regulators and politicians seem oblivious to their role in the downturn.
There are many intertwining factors involved: the government has narrowed the scope of foreign investment, not just by fewer approvals but with new taxes; China has discouraged cash going overseas; lenders have increased standards and loan requirements; some lenders have raised rates (NAB just raised its variable rate); and then there are the other domestic factors like stamp duty depending on your state, and Labor's vague statements about negative gearing.
Recently, the Real Estate Institute of New South Wales (REINSW) called for stamp duty reform in the wake of complaints from buyers. In 70 suburbs, stamp duty cost the average buyer more than $100,000.
People have begun to seriously complain that a stamp duty which is scaled to prices from decades ago is excessive and out of touch with the market. In Tamarama, stamp duty was a huge $362,000 on average! That's enough to buy an entire apartment in Wollongong. But no matter where you are, at today's prices, the stamp duty is a stiff charge.
Tim McKibbin, CEO of REINSW, said stamp duties are so excessive that some people can no longer afford to buy homes.
"When I hand over my (say) $200,000 to the government, I get nothing, absolutely nothing."
State governments have been stubborn about changing the tax, which is based on 1986 prices. Which is understandable, considering that it makes for a huge cash influx for the state government: $8.4 billion in 2018.
When the current tax rates were set in 1986, it only applied to homes over $300,000, which was more than 3 times the median home price. But now, in Sydney, you are hard-pressed to even find a home for less than that.
Mr McKibben said it's difficult to get government to move on the issue.
"They’re addicted to it now, and they don’t know how to switch off the river of gold. It will take a huge amount of political courage to take this problem on."
NSW government said it would change stamp duty rates in July, but their promise to index it to inflation is not good enough, according to Mr McKibben.
"The (changes) are really just chump change … by our calculations (it) will only marginally affect how much property buyers have to pay in duty."
Buyers say one of the most frustrating parts of the tax is not knowing where the money goes. Liz Short, who along with her husband recently paid $60,000 in stamp duty, complained about the lack of transparency.
"It hurt a lot. If I knew where it was going and I knew it was for a purpose I think I would be okay with that, but I have no idea.
"Stamp duty definitely did impact how much we could afford to pay. I can see how people get caught out if they don’t think about it."
Mr McKibben said, "If the government is serious about stamp duty reform, it should realign the stamp duty tiers to reflect the median price of property across Sydney, which is $970,000 for houses and $720,000 for units."
"The reality of the situation is that if the government were to drop the rate of tax, there would be an increase in the number of property transactions, which in turn would make them more money.
"They need to look for the sweet spot where the rate of tax won't deter people from transacting properties.
"At that level, you will get the maximum amount of transactions possible."
And let's not forget the Labor Party's comments about negative gearing. At first promising to restrict negative gearing to a much narrower group of investors, it has walked that comment back (no doubt due to the upcoming election) and said it won't make any decision until after the election. As if that really makes a difference.
These are the things Labor promised to do:
1. Reform negative gearing. The idea here is to bias it less toward commercial interest, in order to give "normal people" a better chance to buy a home. But would it really accomplish that, or would it decrease investment in property across the board?
2. Cut the 50 per cent deduction on capital gains on sales of assets in half.
3. Tell everybody later when those policies will be put in place.
The truth is that at least with the earlier announcement people knew what to plan for. But now Labor added uncertainty for political reasons. Uncertainty drives away property buyers and has a direct effect on the economy by lowering consumer confidence.
Adrian Kelly, President of REIA, said Labor made the announcement that it wouldn't announce a policy right now is because "the ALP doesn’t want any voter backlash in the lead up to the election."
"All Australians need to know what and when a Labor Government if elected, will do regarding property taxation. It is not acceptable to appear to be ‘having a couple of bob each way’ in the lead up to the election.
"REIA welcomes the promise to consult but let’s do that now, not after the election, and let’s look at all property taxes in a holistic approach and not just negative gearing and capital gains tax as if that’s the panacea to housing affordability."
He said there is already enough uncertainty in the market (surely an understatement):
"Particularly in the larger states - a 'nothing to see here' approach will only exacerbate this uncertainty.
"The ALP needs to come clean with what its election policies actually are so that all Australians – including the nearly 100,000 real estate businesses across Australia together with their employees and families - know exactly what they will be voting for and can make an informed decision at the ballot box."
On its website, Labor mentions as a justification the decline in home ownership for the 25-34 age group, which it claims has gone from 60 per cent down to 48 percent in recent years.
Perhaps so, but it seems questionable whether their actions actually address the issue in a positive way.
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