What the election result means for negative gearing
Following news this week that Malcolm Turnbull will continue as the Australian Prime Minister, it seems it will be business as usual for the Australian property market.
Prior to the election, the Labor Party promised to make changes to the current negative gearing laws if they were to win the election. Negative gearing laws allow investors to offset losses on investment properties to reduce their taxable income. Labor’s proposal was to alter these laws by restricting negative gearing to first home buyers. The change was to be grandfathered, with investors buying prior to 2017 exempt from the proposed changes.
The proposed changes were welcomed by some first home buyers and investors trying to break into the market, as the changes were aimed to soften property prices. However, many investors were concerned that without the tax benefit, it would make it more difficult to continue to build a property portfolio.
Now that we know the election result, what exactly can we expect from the property market?
The re-election of the Liberal Party is likely to influence a continued increase in foreign investors within the Australian property market, who, like local investors also benefit from negative gearing rules. In 2014 there were 56,000 investors from outside of Australia, 40% of which claimed tax deductions on their property investments in Australia.
What it means for first home buyers and investors
According to research released this week, the amount of first home buyers in Australia is now at its lowest in over a decade.
Source: Australian Bureau of Statistics, Housing Finance, May 2016
It’s important to note that many first time buyers are in fact not buying their first home, but rather an investment. Current reporting methods are not able to differentiate between someone buying their first property to live in and someone buying their first property as an investment property. It’s time the reporting bodies make this distinction to get an accurate picture of the market.
With a continued rise in foreign investors and a government that is not likely to change negative gearing, it is unlikely that we will see a significant softening of the property market, which would have allowed for first home buyers and investors to break into the market more easily. On the contrary, evidence suggests that first home buyers (and investors) now make up a diminishing fraction of the Australian property market.
What it means for investors
On the other hand, for seasoned as well as ‘mum and dad’ investors, the re-election of the Liberal Party is likely to be welcomed when it comes to property, with negative gearing benefits remaining fixed for those with multiple properties.
Although there are no proposed changes to negative gearing laws for the foreseeable future, it is possible that the large portion of Labor MPs which have recently been elected into Parliament could sway the debate.
To find out more about negative gearing contact me on 02-9522-3000.