With federal elections happening soon, investors are starting to reassess their strategies in order to thrive in the changing market. How can they best prepare for possible changes in the property investment landscape?
If a change in government happens, among the major changes that are expected to happen will be around policies on negative gearing and other features of the tax system across Australia.
According to the Institute of Public Accountants’ Tony Greco, there could be up to 13 major policy changes should there be a change in government this year, including amendments on policies pertaining to negative gearing and capital gains tax discount.
As politicians are looking into abolishing negative gearing for most properties, they are also looking to limit the discount on taxable gains from 50 per cent to 25 per cent, which could translate to a higher tax bill.
“There's obviously a lot of uncertainty in relation to what’s happening in the property market and uncertainties in relation to potential changes. I think most people are aware that some of the features of our tax system are about to change if we do have a new incoming Labor government.”
“We’ve counted up to 13 major policy changes – things that don’t affect property and things that do affect property. They’re all naturally very important,” Mr Greco highlighted.
A shift in major policies could have significant impact on the growth of portfolios across the country, regardless of the current movements of the property market, which is why Mr Greco, along with other property professionals, seek to educate investors on what exactly is at stake.
Mr Greco strongly encourage investors to reassess their portfolio and their financial position in order to prepare themselves for any major change in the property investment landscape.
Along with the fluctuations in the property market, particularly in the big markets such as Sydney and Melbourne, policy changes can heavily influence how they operate across the market, according to him.
The property professional said: “It’s not well understood that these changes do not just relate to property. It relates to all investments. If you’ve borrowed money against shares or borrowed money against managed funds, it’s going to be the same deal with property. There’s a lot at stake.”
When doing a reassessment of portfolio, one of the first things for investors to consider would be the numbers on their existing properties.
“Look at all your properties—is there an excess amount of deduction that could be offset? If you have a property that’s positively geared and one that's negatively geared, you pull them together and see what the overall impact could be. That's how we envisage the policy to operate. It will be different for every property investor, especially if they have a mix of positive and negative investments.”
“From a cash flow perspective, nothing changes, but if you had to realise that property in the short term, you have to factor in some adjustment in the market price. I think for anyone who’s contemplating a transaction in the foreseeable future, I think that’s got to be on the radar.”
“On the other hand, someone who wants to purchase another property and use negative gearing as a strategy will have to recognise that it may not be available for an existing property,” Mr Greco said.
While it’s not yet clear whether the policy will ever take hold, investors must be prepared to make adjustments to their strategy considering the current state of the property market – from declining values to the tightening of the credit environment.
“There is a lot of uncertainty in relation to what might happen but people should always reassess their own portfolio and their future desires to understand the possible implications of market movements.”
Mr Greco advised investors to get in touch with property professionals, where appropriate, in order to get a better understanding of the future of the property market.
Accountants, in particular, can help them get an idea of the direct impacts of possible policy changes and market fluctuations on their portfolio.
“Understanding how these possible changes can impact the broader market is a good starting point. Accountants will be well-versed enough to explain these to you, while taking into account your future ideas about how to operate your portfolio.”
“Have a conversation with your trusted advisor as early as now,” Mr Greco concluded.
Tune in to Tony Greco's episode on The Smart Property Investment Show to know more about the potential shift away from negative gearing, changes to capital gains tax, and how investors can be best prepared for any changes that may arise.