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Housing Market Risk Reduced

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Harbour Team | Posted on May 28, 2019

"Dad still can’t work out how he got it so cheap. It’s worth almost as much today as when we bought it".
- Dale Kerrigan, from cult Australian Film, The Castle

With the median Melbourne house price down 10% from its peak, many Victorians will be envious of the value held by Darryl Kerrigan’s Strathmore home.  And even more envious Sydneysiders with house prices down 15% in the largest city (according to Core Logic). 

In our assessment, the probability of an extended collapse in Australian residential markets has been reduced, owing to three key recent events:

  • The re-election of the Australian Liberal Party (ALP) and therefore the continuation of tax concessions for investors;
  • The bank regulator easing serviceability requirements;
  • An easier policy stance taken by the Reserve Bank of Australia (RBA).

Australian house prices have been falling for almost two years driven by a narrative of lower migration, reduced affordability, the threat of less favourable tax policy, pockets of oversupply, particularly in several apartment markets, and, most prominently, reduced credit availability following the Australian Royal Commission’s probe into bank lending practices.

The surprise re-election of the Liberal-National coalition is supportive for property investors in eliminating the threat of a capital gains tax and the removal of negative gearing policy.  Last week bank regulator, APRA, proposed easing the tests banks must conduct when testing most borrowers’ ability to service their mortgages. Our base case is this proposal will increase the maximum amount the average borrower can access by at least 5%. Finally, in a range of recent speeches, the RBA has taken an appreciably easier tone which should flow through to lower mortgage rates.

Indeed, we are already seeing evidence of a recovery in auction clearance rates, a barometer of sentiment which has historically provided a good steer on pricing. While likely to be revised, a 62.6% success rate was recorded at auctions over the most recent weekend (not pictured).


NZ presents a foggy mirror image.  A capital gains tax is now confined to the policy dustbin and mortgage rates have dipped lower. The Reserve Bank of New Zealand (RBNZ)’s bank capital proposal is expected to have an impact on mortgage pricing and potentially availability.  An article in last weekend’s AFR under the headline RBNZ offers banks an olive branch on capital plans has led to commentary that the RBNZ may be softening its stance.  We think this is true at the margin, but the commentary may be somewhat wishful as, in the most part, the RBNZ is simply reiterating its desire to engage with stakeholders.

Housing markets are drivers of consumption via the wealth effect, they impact bank profitability via loan growth and asset quality and are also a key driver for construction activity. The key point of this note is to say that we think the risk of a protracted decline in activity has lessened. However, as investors directly into the property sector, retirement villages, the banking sector and, indeed, the wider economy, we keep a watching brief.


Harbour Asset Management Limited is the issuer and manager of the Harbour Investment Funds. Investors must receive and should read carefully the Product Disclosure Statement, available at We are required to publish quarterly Fund updates showing returns and total fees during the previous year, also available at Harbour Asset Management Limited also manages wholesale unit trusts. To invest as a Wholesale Investor, investors must fit the criteria as set out in the Financial Markets Conduct Act 2013. This publication is provided in good faith for general information purposes only. Information has been prepared from sources believed to be reliable and accurate at the time of publication, but this is not guaranteed. Information, analysis or views contained herein reflect a judgement at the date of publication and are subject to change without notice. This is not intended to constitute advice to any person. To the extent that any such information, analysis, opinions or views constitutes advice, it does not consider any person’s particular financial situation or goals and, accordingly, does not constitute personalised advice under the Financial Advisers Act 2008. This does not constitute advice of a legal, accounting, tax or other nature to any persons. You should consult your tax adviser in order to understand the impact of investment decisions on your tax position. The price, value and income derived from investments may fluctuate and investors may get back less than originally invested. Where an investment is denominated in a foreign currency, changes in rates of exchange may have an adverse effect on the value, price or income of the investment. Actual performance will be affected by fund charges as well as the timing of an investor’s cash flows into or out of the Fund. Past performance is not indicative of future results, and no representation or warranty, express or implied, is made regarding future performance. Neither Harbour Asset Management Limited nor any other person guarantees repayment of any capital or any returns on capital invested in the investments. To the maximum extent permitted by law, no liability or responsibility is accepted for any loss or damage, direct or consequential, arising from or in connection with this or its contents.