Over the past several days you’ll have noticed we’ve spent a lot of time talking about property.
It’s a topic we certainly don’t ignore in Money Morning, but it is rare we focus on it this much.
At the end of the day though, what Money Morning is about is showcasing ideas you won’t find anywhere else. And right now, the property market is completely off the mainstream’s radar.
Most analysts and ‘experts’ are bracing for a huge collapse in property. Pulling out one extreme forecast after the next. So, if you take their opinion as gospel, you’d be forgiven for thinking property is a sector to avoid at all costs.
In reality though, that may not be the case.
My colleagues — Catherine Cashmore and Callum Newman — don’t believe a crash is coming. Instead, our current predicament slots neatly into their forecasted mid-cycle slowdown. And once the worst of this virus and lockdown are out of the way, the property market could boom once more.
They’ve even created an entire roadmap for what is to come. It’s called the ‘almanac’, and I thoroughly suggest you check it out, right here.
It’s a highly contrarian take on the situation. Which is precisely why we wanted to let Catherine and Cal tell you all about it.
After all, how can you ignore a claim like this:
‘We’re currently at the halfway point of what I think will be — yet again — the greatest real estate boom of all time.’
As for my view, well I certainly agree to an extent.
I’m no disciple of cycles like my colleagues, but I can see the writing on the wall. Despite all the bad news and grim forecasts, a lot of people seem to be ignoring one key development…
Property’s biggest rort
See, when it comes to property prices the government plays a massive role.
They are responsible for systems such as first homeowner incentives, negative gearing, and halving the capital gains tax. Policies which have all played a huge part in sending property prices soaring.
I’m not suggesting it’s the only aspect, but it is a vital one.
However, as much as they give, the government also takes. The amount of red tape and planning involved in buying a home can be enough to send you mad. Not to mention send you broke.
As realestate.com.au reported last year:
‘Taxes and regulatory costs comprised 37 per cent of Sydney unit prices.’
It is truly staggering to see how much money is sucked up by bad policy. And as any home buyer will tell you, the worst of the lot is stamp duty.
As an example, imagine you were looking to buy a home for $500,000 in Melbourne right now. In order to buy it, you’d have to pay $21,970 in stamp duty.
And that’s provided it will be your primary residence. If it’s an investment property, you’re going to have to fork out $25,070!
It is by far the biggest rort in the whole industry. An upfront tax that only serves to benefit government coffers.
Even our PM admits it’s shocking, stating:
‘Stamp duty is a terrible tax,
‘Every economic analysis puts it at the top of their list of worst taxes. For every $1 raised it does about 80¢ of harm.’
That’s why stamp duty must go. Making way for a better, fairer system. And it seems the state governments are finally getting the message.
Better late than never
As we continue to see the economic impact of COVID-19 unfold, all levels of government are looking for solutions — ways to ensure we get through this downturn relatively unscathed.
Naturally, a big part of this recovery will revolve around property. Australia has always had an infatuation with its housing market, and this crisis is no different.
At the federal level the Liberals, Labor, and the Greens are all in agreement to scrap it. This is the first time in a long time that we’ve seen tri-partisan support for a policy.
It’s a similar story for state parties as well. Both NSW and Victoria are pushing to scrap stamp duty. A move that will have dramatic ramifications for house prices.
Now, don’t get me wrong, they’re not doing this totally out of the goodness of their hearts. Scrapping stamp duty will mean putting in place some sort of alternative land tax. The details of which are still yet to be finalised.
After all, this is still about collecting money. It’s just taken a crisis to get them to realise that stamp duty doesn’t work if people stop buying and selling homes. Like they are right now.
Now, whilst this certainly won’t be an overnight policy turnover, it is crucial for investors right now. Because if stamp duty goes, which is looking very likely, then that will be massive for the property market.
I’d wager that getting rid of stamp duty could do more for house prices than any other policy. Not only because it should lead to more overall buying and selling, but because it will force state governments to adapt.
Mark my words, NSW and Victoria aren’t going to like losing all that easy money. It is by far their biggest revenue raiser at the state level.
So, if it goes and a land tax comes in, that means politicians will be very keen to boost the value of land. And the best way to do that is through public infrastructure.
Schools, roads, public transport, and other key projects all help lift land values. Which, as a result, should lead to higher land taxes. It’s a simple flow-on effect when executed well.
This all just speculation on my behalf right now though. Until we get the finer details it’s impossible to know exactly what will happen.
But I certainly do believe the Aussie property market isn’t as doomed as many think. Not with this sort of tentative response, anyway.
For investors, this means you could be looking at an unprecedented opportunity. And that’s precisely why you need to keep an eye on the property market.
Again, I believe the best resource for that is Catherine and Cal’s almanac. Do give it a read, because even if you aren’t a property investor, it’s worth a look. Check it out in full, right here.
Editor, Money Morning