It seems the Royal Commission has had a negative impact on more than just the banks and advisers, with the housing sector taking a big hit in 2018 and looking to carry that same momentum into 2019.
Tribeca Investment Partners portfolio manager, Jun Bei Liu, said with early polls suggesting a victory by the Australian Labor Party, investors should start thinking about some of their key policies, like changes to negative gearing.
“The implication of potential changes to negative gearing will be far more negative with risk of adding significant pressure on an already softening housing market,” he said.
“The flow on impact will be substantial pressure on our economy and our fragile banking system. Our base case investment thesis includes a softening housing outlook without changes to negative gearing.”
Liu said ongoing credit tightening post the Royal Commission was pressuring house prices, which would lead to weaker housing construction and flow-on effects to retail and consumption.
“It is difficult to get excited about the attractive valuations in the banking sector with this backdrop, as they are cycling low bad debt charges and face higher regulatory capital, and higher funding and compliance costs.”
Looking at the performance of residential property in each individual Australian capital city last year, it’s clear the 12 months to 30 November 2018 were a struggle.
Hobart, Adelaide and Brisbane were the only cities to produce positive returns, with each city’s Australian Bureau of Statistics (ABS) Residential Property Index returning 13.02 per cent, 2.02 per cent and 1.71 per cent respectively.
The Perth, Melbourne, Sydney and Darwin indices dropped into the negative, with Darwin’s index producing the worst returns at -4.41 per cent.
Sydney’s index sat just above Darwin’s with -4.36 per cent, while the Perth and Melbourne indices only dropped to -0.48 per cent and -1.53 per cent respectively, and the average, the ABS Residential Property Eight Cities Index, returned 1.92 per cent.
The chart below tracks the returns of the indices for the 12 months to 30 November 2018.
