John McGrath, CEO of McGrath Estate Agents, says the Sydney property market is very quick to react to incentives, such as the extension last year of the 5% deposit guarantee scheme, or disincentives like the budget changes.
He says the changes to negative gearing and capital gains tax in the budget appear to have been the “straw that broke the camel’s back”, landing on top of rising interest rates, record living costs and global uncertainty. As a result, less than half of the auctioned properties sold in Sydney over the weekend, signalling falling prices.
McGrath argues the budget “attacks the heart of property” by reducing the benefits of negative gearing and capital gains tax discounts.
“There’s no doubt this was the straw that broke the camel’s back”, McGrath told The AFR. “We already had an upward spiral of interest rates, we had the highest cost of living in history. We’ve got geopolitical unrest and uncertainty in the Middle East”.
“We’ve got a number of factors that were already weighing heavily – this was the straw that broke the back. They’ve voted with their feet. People are saying they’re not happy with this”.
“It’s a very disappointing budget from property’s perspective because property has been the asset class that has given most Australians financial freedom in their lives and the ability to hand something down to their kids when their life is at its end”.
“This attacks, both through capital gains tax and negative gearing, the heart of property”, McGrath said.
Cotality’s Research Director Tim Lawless added that the budget’s tax changes delivered “an almost instant impact on market confidence and sentiment”, with Sydney especially impacted.
“Now you have the downside impact of the budget announcement which will be even more impactful on Sydney, given the NSW market has the highest portion of any state of investors”.
“You don’t want to catch a falling knife”, Lawless said.
The following chart of Sydney’s daily dwelling values index tells the tale, with values declining by 1.3% since the beginning of March:
Rising interest rates, tax changes, elevated for-sale listings, and softening buyer confidence will inevitably drive Sydney home values lower.
