On May 18th, Australians will go to the polls in the Federal election.
Will Liberal continue on, or will Labour cause an upset? Maybe Clive’s big advertising splurge will pay off?
While I think the last thing that we all need is more election talk, I would like to take a few moments to weigh up what all sides are promising with regards to something close to my heart – investing in property.
Let’s start with Labor’s proposed changes to negative gearing and capital gains discounts.
Labor is proposing to…
- Limit negative gearing to new housing from 1 January 2020. All investments made prior to this date will not be affected by the changes and will be fully grandfathered.
- Halve the capital gains tax discount for all assets purchased after 1 January 2020. This will reduce the capital gains tax discount from assets held longer than 12 months from 50 per cent to 25 per cent. All investments made prior to the 1 January 2020 will be fully grandfathered.
- Put negative gearing to work by limiting it to new investment properties to help boost housing supply and jobs.
What are the motivations behind any changes to the current structure?
The motivations behind the proposed changes to negative gearing and capital gains are all about housing affordability. The idea is to put downward pressure on housing prices, and thereby make it easier for people (owner-occupiers) to enter the property market.
What will happen under the proposed changes to negative gearing & capital gains
Independent research firm SQM Research have come up with some very clear findings on how these proposed changes will effect both property and rental prices.
The study estimates that under these changes, National property prices could fall between 5% and 12% nationally by 2022, and that rental prices will then increase as property investors attempt to recover their losses.
“We think investors will be seeking a higher rental yield to make up for the lack of tax concessions” says Louis Christopher, founder of SQM.
Should we be worried about Capital Growth?
Some property investors seek capital growth, others seek higher rental yields….. Me personally? As the little girl in the taco ad says, “Why don’t we have both?”
(Image Source: https://www.buzzfeed.com/alexlee/porque-no-los-dos)
Theoretically, if you’re not concerned about capital growth in property prices, the proposed changes from Labor may appeal to you.
Or if you’re someone who prefers seeing capital gains across your property portfolio, you may not be looking for a change in government come 18 May.
However; all of this is only one side of the (potential) story.
Treasury rejects findings
Interestingly, Treasury’s advice rejects the research findings, and has stated that Labor’s policies would only have a ‘modest impact’. In fact, Treasury explicitly told the current Government that it should not even claim home values “will” fall under the proposal. (Source: ABC News)
Does this mean that long-term, the little taco girl will get her wish??
What does all of this mean for property investors?
My theory is simple, in tough or uncertain times, the cream will rise to the top.
Educated, savvy property investors should still have their portfolios holding value or continuing to grow.
How is this possible??
Although we have seen the recent tightening of lending lead to a decrease in property prices, this has not meant that the demand for accommodation in certain locations around Australia has decreased. If the demand for accommodation is on the rise and the supply of accommodation does not keep up, the value of the commodity (housing) theoretically should continue to increase.
Does this mean that if you have bought in the right location that any changes to the political landscape will have little to no effect the values of your property??
Unfortunately, I don’t have a time machine and can’t give you a definitive answer. But if you have invested smartly thanks to objective property research, you have a better chance of your investment withstanding policy changes.
So, should you vote Labor or Liberal, Clive, Pauline or Richard? I’m not here to give you the answer, but I will leave you with this thought:
Whoever you choose, take the same approach to politics as you should with property:
Research, research, research as the decisions we make today effect future YOU!
The pushing down of house prices may effect investors strategies however; even before the election has occurred, we have seen national property prices drop over the last 17 months. Has your property value dropped?