3 ways negative gearing changes could affect your property investment plans

There has been a lot of talk about changing negative gearing, and the Labor Party has made a solid decision on the matter for this election year. Should the Labor Party be elected, they have decided that they will make significant changes to how negative gearing works, limiting the tax benefits through its use to newly constructed buildings and already-existing investments only, after July 2017.

As a current or potential property investor, you might be wondering how this policy would affect you. Here are three possible outcomes should this policy be enacted:

Could negative gearing changes be encouraging new construction?

1) More opportunities for current investors and new buyers

You could be seeing far more properties entering the market in the second half of 2017. The fact that negative gearing would be limited to newly-constructed buildings would give property buyers more reason to take out constructions loans to build fresh dwellings rather than buy established ones.

This would increase supply and drive property prices down, giving investors the chance to extend their current portfolio or for first home buyers to take their first step onto the market.

2) Another value spike

Domain Group Chief Economist Andrew Wilson made the argument in a February 16 Domain article that the policy would send investors scrambling to buy up properties. The brief window before the cut-off date would present the only chance for investors to purchase established properties and still receive negative gearing benefits.

This huge demand would suck up what remains of the short supply, increasing values even further. While this price spike would be beneficial for current investors looking to sell, those looking to take out their first home loan might find themselves priced out of the market.

3) Enormous volatility across the board

The Property Council of Australia has come out against the proposed changes, citing a number of reason that you “can’t increase taxes on housing by $32 billion and not affect rents, housing construction or prices”, as described by Ken Morrison, CEO of the Property Council.

Value growth in capital cities is slowing, potentially indicating that supply is finally meeting demand. Making such an enormous change during this delicate growth period could send the market spiralling back out of control, says the Property Council.

There are a number of different and contradictory proposed outcomes to this potential change to negative gearing. Ensure that you are kept up to date by speaking to your local mortgage broking expert today.