The investment property market in the last 18 months has undoubtedly seen difficulties such as banks being more cautious about lending following the recent Royal Commission. The outlook in Brisbane however is anything but negative and an upturn is possible regardless of the imminent federal election result.
The Australian Labor Party have released some detail of their taxation policy which proposes to halve the existing capital gains tax subsidy. Currently, a property investor is able to claim a 50% discount on any gain made when selling an investment property, if they own the property for more than 12 months. The ALP proposes to reduce the discount to 25%, which still allows for a discount on gains which should not be a deterrent for the majority of investors who are holding investments for the long term. The ALP have also stated that any investment asset owned prior to the 1st January 2020 will be fully grandfathered and not be effected by these changes.
With the proposed ALP changes to capital gains discount and negative gearing, investors may restructure their portfolio to acquire cash positive investments. This will see investors flock to the Brisbane inner city market searching for high-yielding investments. The coalition’s argument against changing the current policy is because it will have a negative impact on high capital growth assets. Over the last 15 years, Sydney and Melbourne’s property markets have driven the majority of real estate price growth in Australia and a change in capital gains tax and negative gearing legislation may further impact these markets.
The ALP’s proposed policy intends to restrict negative gearing to only new dwellings. Existing negatively geared investment properties will be exempted from the changes which will also be grandfathered to reduce sudden impact. Therefore the current 1.3 million property investors will still be able to claim for deductions against their investment properties purchased prior to these changes.
A concern is that in 2020, if these changes are implemented, the property investor may increase rents to cover any shortfall. This presents a scenario in which renters saving for their first home will thus have less with which to buy a new house and have to delay in doing so.
On the whole, though, there are arguments both positive and negative about future prospects for investors pending the outcome of the federal election. It must be noted that at this stage that the ALP’s announcements are merely announcements and there is a long road between an announcement and an implemented policy. Irrespective of the election outcome, property investment is a long term strategy and will continue as a worthwhile proposition.