Election year market movements

Real Estate

With the federal election fast approaching, a lot has been said among property analysts about an expected housing market slowdown in the lead up. RP Data’s senior research analyst Cameron Kusher has taken a look at the past five federal elections and observed the performance of the housing market in the year leading up to ballot day, in terms of capital city home value growth and national house and unit sales. 
The five elections looked at occurred between 1998 and 2010, for three Coalition wins, one Labor win and the infamous most recent hung parliament resulting in Labor retaining power. In each instance, home values increased in the 12 months leading up to voting day. This year to the end of July, capital city values are up by 4.9 per cent and appear to be on track to increase over the year leading up to the election in September. In 2001, home values rose by 18.8 per cent annually leading up to the election, in 2007 it was a 13.2 per cent rise, both figures being achieved in a period of upswing for the market. Increases were much more subdued, namely 5.7 per cent in 1998, 2.8 per cent in 2004 (slide 2) and 8.8 per cent in the most recent election year, 2010. Although market health at any given time is a clear driver of value peaks and troughs, this data indicates consistent value increases in election years. 
 
Looking at national home sales, the results aren’t quite as uniform in the election build ups of recent years. The most recent home sales data shows a 19 per cent increase in the year to May, likely to be given a further kick by the RBA’s record breaking interest rate call last week. Home sales were also significantly higher leading up to the 2001 and 2007 elections, however volumes decreased prior to the 1998, 2004 and 2010 dates and showed little consistency in their range of decline, coming in between 2.6 and 32.4 per cent. (slide 3)
The data indicates a rise in home values leading up to each of the past five elections however sales increases in only two. Just how much these trends can actually be linked to an impending election date is a matter for debate, however the one clear discernible fact is that federal elections don’t appear to have a slowdown effect on the housing market. 
 
Commentary
 
FNN asked Tim Lawless from RP Data if more RBA rate cuts will play a telling role in getting housing activity into full blown recovery:
 
“The lower mortgage environment is certainly going to act as further stimulus to the housing market. Without doubt lower mortgage rates- a lower cost of servicing debt- is very attractive to most buyers in the market place, but particularly more home owners. What we are finding is that first home buyers are still struggling to get into the market place due to the increases in values we’ve seen in the past; but look at investors, they’re really the most active segment of the market at the moment followed by upgraders. For investors with the cash rate moving down- or probably moving down- and mortgage rates now getting around the low five per cent mark, we’re seeing more and more properties move into a cash flow positive or cash flow neutral mark which I think is going to be encouraging more investors back into the market place.” 
 
Australian auction results
 
Looking at this week’s auction results across Australian capital cities - Sydney recorded a 84 per cent clearance rate from 263 properties for auction, Melbourne cleared 71 per cent from 244 properties, Brisbane had a 51 per cent clearance rate from 34 properties listed and Adelaide cleared 67 per cent from 17 reported auctions. 
 
Commercial property sector
 
BWP Trust (ASX:BWP) has revealed a solid lift in full-year net profit on the back of growth in its property portfolio. In the year to June 30, BWP Trust posted net profit of $110.6 million, a 58 per cent lift on last year’s result. The net profit includes $34.8 million in unrealised gain in the fair value of investment properties. In the same period, revenue was about $109 million, almost 8 per cent higher than the previous corresponding period. BWP Trust will pay a full-year dividend of 14.14 cents.
 
FKP Property Group (ASX:FKP) is refining its strategy. The property and investment company has decided to change its name to Aveo Group, subject to shareholder approval, will dispose of its holding in PBD Developments Limited (ASX:PBD) and book a $187.9 million impairment as a result of a revaluation of its property assets. 
 
Stockland’s (ASX:SGP) full year net profit has dived 79 per cent to $104.6 million, hit by a $355 million impairment in the value of its residential book. Underlying profit for the year was $494.8 million, 27 per cent down on last year’s result. Revenue in the same period was $1.73 billion, a significant decline on the $2 billion recorded in fiscal 2012. Stockland says it’s confident its earnings will improve in the year ahead as it has restructured the business and expects increased income from new retail, residential and retirement living projects.

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