The mood in the property sector just got a lot brighter after federal Labor’s shock defeat at the election on the weekend and some experts believe ASX property-linked stocks are set to rally.
The market had priced in a Labor win that could restrict negative gearing for property investments and halve the discount on capital gains tax (CGT). This will now be unwound and that means we could see a number of stocks rally, at least in the short-term.
This likely includes the likes of property websites REA Group Limited (ASX: REA) and Domain Holdings Australia Ltd (ASX: DHG), which have been impacted by falling property listings, as experts are expecting a rebound in the property market, according to the Australian Financial Review.
Brace for “Positive shock”
The AFR reported Goldman Sachs economists are forecasting “a moderate positive shock to sentiment in the corporate sector and a more meaningful one in the housing sector”, while AMP Limited (ASX: AMP) chief economist Shane Oliver is also predicting a rebound in housing-related stocks.
Dr Oliver tweeted that the preservation of negative gearing and CGT discount, plus the prospect of interest rate cuts and slowing housing supply next year “will likely help Aust resi prices bottom out short of the worst case falls some are putting out there”.
Falls of up to 20% to 30% (peak to through) have been touted by property bears compared to Sydney’s current fall of around 14% and Melbourne’s at around 10%.
Builders to bounce back
While changes to negative gearing under Bill Shorten would only impact on established property investments (and would be grandfathered), property developers like Stockland Corporation Ltd (ASX: SGP) are feeling decisively upbeat about Prime Minister Scott Morrison’s renewed term in office.
The chief executive of Stockland, Mark Steinert, believes the Coalition’s victory is good for his business and a win for small businesses in this country.
He told the AFR that Labor’s negative gearing and CGT discount changes “were going to be detrimental to investors and the market” and warned that rents would rise while property prices would fall further than they needed to.
Building material companies that have been doing it tough on worries of a residential construction slowdown are also likely big winners and these include the Boral Limited (ASX: BLD) share price and CSR Limited (ASX: CSR) share price.
Some experts would disagree with Mr Steinert’s assessment on the materiality of rents and home prices, but this is something Australia may never be able to conclusively prove as I don’t think our political leaders would dare change these policies – at least not for a very long time.
Regardless of the fundamental impact of these proposed changes to tax benefits, sometimes sentiment alone is enough to give investors a reason to rush back in to the market.
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Motley Fool contributor Brendon Lau owns shares of Boral Limited. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.