Many property investors are anxious to make their next move as they wait for the outcome of the upcoming federal election. They fear that negative gearing and capital gains tax will undergo significant reforms if the Labor Party wins.
Cooling house values in Sydney and Melbourne since the planned changes to the policies were first announced could make people rethink, according to Real Estate Buyers Agents Association (REBAA) President Rich Harvey.
“Regardless, I’m not convinced most property investors should pull up on their plans because of the potential negative gearing changes,” said Harvey. “Negative gearing is a path to tax minimisation and it does help ease the burden of holding a property, but it shouldn’t be the primary reason to invest. If you are relying wholly on negative gearing to prop up your investment, then the problem is with your portfolio, not the policy.”
Harvey said that investment is a long-term game, noting that the objective is to score quality property with good fundamentals that can grow over the long term and not be a pain in the neck while owners hold it.
“If negative gearing is removed for established properties, it will mean investors must carefully consider the rental return before buying, as there would be no tax subsidies for ongoing losses,” he said.
Whether negative gearing will have to face reforms or not, investments held before the change comes into effect would be ‘grandfathered’ or excluded.
The Labor Party’s plans to cut the discount on capital gains tax from 50% to 25% will also be fully grandfathered, said Harvey. The dates for implementation, though, are yet to be announced.
The negative gearing and capital gains tax reforms, meanwhile, will start in January 2020.
“During times of economic uncertainty, softer conditions are more likely, and the advantage for buyers is the ability to negotiate a far better price on a quality property,” Harvey said.
He said that buying while in the middle of political uncertainty means that there is less competition and investors can set up for the long-term hold.
“An independent, experienced buyer’s agent who is working on the ground can … uncover some excellent property gems that will deliver long-term gains,” Harvey said. “If you wait to see what happens at the ballot box; you could miss the boat and your chance to lock in the best possible return.”