With federal elections coming soon, investors could be in the midst of major changes in policies across the property landscape. How can they prepare themselves to thrive amid a changing market?
As elections draw nearer, experts have been discussing the possibility of major shifts in several aspects of property investment, including negative gearing, capital gains tax and self-managed superannuation funds (SMSF)—all of which have major impacts on the growth of assets.
However, Rethink Investing’s Scott O’Neill reminded investors that there is absolutely no need to panic.
After all, in spite of wide-ranging talks and media coverage, nothing has been set in stone just yet.
“Do you need to quickly hurry up and change your tactic around investing in property? No, because you never go make a decision off the bat.”
“Right now, we don’t know who’s actually going to be in power. There’s strong opinions, of course, but you don'’t get to make a big investment decision off these speculations. You just need to wait it out and see what happens,” Mr O’Neill highlighted.
Among the possible changes that have become a huge point of discussion nowadays is the possible changes in negative gearing policies, which could impact the ability of investors to maximise tax benefits moving forward.
While negative gearing plays a big role in some investors’ investment play, Mr O’Neill reminded them that, at the end of the day, negative gearing is not a strategy but merely a tax outcome.
Property investment must always be founded on growth fundamentals, including supply and demand, infrastructure, population growth, jobs growth and overall local and national economy.
“I don’t think you should invest for negative gearing. It’s not a wise strategy to buy a property just so you can get some tax back,” according to the buyer’s agent.
One other looming change that concerns investors at the moment is around their ability to use self-managed super funds for property investment.
Mr O’Neill explained: “Currently, you can go out and lend to buy a commercial or residential property, or even shares, in fact. Under Labor, that won’t be happening. Will that actually get through the upper house? We don’t know. A lot of experts out there are saying this could be something for mid-2020.”
“Right now, a lot of people are rushing to use their super to buy a property because it may not be there later. It is a really good strategy when you buy the right property because you can leverage, and the whole point of property investing in Australia is to leverage.”
“However, it’s just not efficient to go buy a property whole because you’re using all your money for a lot less asset value. Does that mean you should be going out to buy a commercial property in your super fund? No, but it definitely means you should start talking to your financial planners, your experts to find out what options you do have.”
Finally, there’s the plan to limit the discount on capital gains – from 50 per cent to 25 per cent.
“Does that mean you go and quickly sell all your property right now because you’re going to pay less tax? Again, you don’t make decisions like that as an investor,” Mr O’Neill highlighted.
Ultimately, investors are advised to educate themselves and do their due diligence in order to prepare for any changes that could happen across the property investment landscape soon. Where appropriate, engage property professionals in order to gain a deeper understanding of policies and how they relate to your strategies.
At the end of the day, there is no one formula that can ensure success in a changing market, but there will always be options that can fit each investor’s goals, capabilities and limitations.
“People should definitely be aware of what could come, all the changes that could come through. Talk to the right people around you and plan accordingly.”
Even with markets softening and policy changes that could be implemented soon, Mr O’Neill reminded investors that there will always be opportunities in the property market, as long as they stick to a long-term strategy founded on their personal goals, capabilities and limitations.
“If you look back at all the crashes in history, there’s been almost triple or quadruple the growth before the correction. So buy for the long-term, make sure you’ve got the cash flow to support yourself and just pick good markets.”
“Where is the infrastructure going? Where are the people moving to? Where is there a lack of supply? If it’s commercial, what types of businesses will do with changes in technology?” according to him.
In fact, now could be one of the best times to buy while most people are retreating due to fear.
“You’ve got less competition. So many people are waiting for the selection and, right now, people still need to sell. Get in when there’s less competition because if you wait until everyone else is there, you’ve already lost out,” Mr O’Neill concluded.