With the election now behind us, what is in store for the property market?

Last night’s landslide Labour win doesn’t really alter property buyer sentiment. Despite the fact that Labour was tipped to win, buyers did what they always do. They sat back, ready to make their move only once the election was behind us.

The shock of the Victorian land tax changes have washed away and investors have been offsetting the pain of the additional tax by weighing up the capital growth prospects. Now that the Reserve Bank has initiated its first interest rate cut in years, Victoria’s property market is poised for a notable shift.

For buyers, particularly in Melbourne, the landscape is evolving, presenting both challenges and opportunities.

Renewed Confidence and Policy Clarity

Election periods often bring a sense of uncertainty, causing many buyers and sellers to adopt a cautious approach. However, with the election concluded and limited new policies around housing on the table, confidence hasn’t been eroded (unlike other years… Bill Shorten’s policies of 2019 coming to mind first and foremost). The new government’s commitment to housing initiatives, such as expanded first-home buyer schemes and restrictions on foreign ownership of existing homes, aims to enhance housing accessibility for Australians. (Source: https://acumentis.com.au/news/how-elections-impact-australias-property-market)

Interest Rate Cuts: A Double-Edged Sword

The Reserve Bank’s recent 25 basis point reduction, lowering the cash rate to 4.10%, marked a significant development. Major banks anticipate further cuts, potentially bringing the rate down to between 3.10% and 3.85% by late 2025. Historically, such cuts have increased borrowing capacity, attracting more buyers into the market. However, this surge in demand can also drive up property prices, posing challenges for first-home buyers. Unlike other capital cities which experienced strong capital growth, (namely Perth, Adelaide and Brisbane), Victoria’s first home buyers had a clearer run in 2023 and 2024 due to limited investor interest.

Melbourne’s Market: A Potential Rebound

Melbourne experienced a 2.9% decline in property prices in 2024, a sharp contrast with growth in other major cities. Yet, the city’s resilience, bolstered by a chronic housing undersupply and the recent rate cut, suggests a potential turnaround. Sentiment counts for a lot, though. Many investors subscribe to mean reversion and have considered the widened gap between other capital cities when contrasted against Melbourne. Others simply appreciate the value proposition that our city represents. An increase in gross rental yield cannot be underestimated either.

Strategic Considerations for Buyers

While the prospect of rising prices might instil a sense of urgency, it’s crucial for buyers to approach the market strategically.

Securing pre-approval, understanding borrowing limits, and focusing on future-proofing their purchase are essential steps.

Looking Ahead

The combination of post-election policy clarity, (or lack of policy that places a threat on the property market), and anticipated interest rate cuts sets the stage for a dynamic property market in 2025. While opportunities abound, especially in markets poised for growth, buyers must remain calm, informed, and prepared to act decisively under time pressure. Formulating a clear purchase strategy, being finance-ready, and staying attuned to market trends will be key to navigating this evolving landscape.

And in eighteen months, we’ll all be contemplating the impact of a State election.