Tax and legal advice

Labor negative gearing reforms would push interest rates up, push value down

By Lucy Dean
Blue sparks, gears

New research has found that if Labor's proposed blanket negative gearing reform came into effect, some investors could see their interest rates go up and property values go down.

Labor has proposed to limit negative gearing to new rental properties and halve the capital gains tax (CGT) discount to 25 per cent in the name of housing affordability.

However, a blanket approach levelled at property investors could have “unintended consequences”, property research group RiskWise and WargentAdvisory have found in a new report.

RiskWise chief executive Doron Peleg said fragile property markets and Sydney apartment investors will bear the brunt of the changes.

“[An] unintended consequence would occur in the Sydney unit market where the proposed changes would be the equivalent to a sudden 1.15 per cent increase in interest rates,” he said.

The 10 most vulnerable geographical areas would also see an average 9.5 per cent fall in value.

These areas are predominantly regional, with Central Queensland’s Fitzroy estimated to see values fall 12.1 per cent. However, inner PerthPerth, TAS Perth, WA would also see a 12 per cent fall.

WargentAdvisory director and report co-author Pete Wargent said for regional or resource-driven areas, policies which dampen demand are “the last thing they need”.

“An introduction of Labor’s proposed changes to negative gearing needs a more nuanced response with some mitigating processes and policies that could be implemented so there are no unintended consequences,” Mr Wargent said.

Warning that discounts limited to new dwellings could trigger distortions in the investor market, he said the initial positive impacts of negative gearing and CGT reform will only persist if supply-side policies were also introduced.

Mr Peleg agreed, pointing to the softening impact of recent investor-lending restrictions.

“Credit restrictions have had a direct impact on investors in the Australian housing market. As a result, dwelling prices in Sydney and Melbourne showed a decelerating growth rate, followed by price reductions in Sydney and, to a lesser extent, Melbourne,” he said.

“In a relatively short period of time, the landscape for residential property in Australia has changed significantly and this necessitates thorough modelling and impact analysis of Labor’s proposed tax reform package.

“The bottom line is that the proposed reforms will achieve some of the ALP’s stated objectives, including tackling the fiscal challenge and budget repair, but not the others.”

The report identified these as the 10 areas to be the most impacted by the proposed reforms:

Greater capital city statistical area Geographical area Property type Renter ratio 12 month change in median avm

36 month change in median avm

Properties in pipeline Properties in pipeline as a % of total properties Average vacancy rate last 12 months Overall potential reduction
Greater Adelaide Adelaide - Central and Hills U 67.6% 2.7% 8.7% 3,781 12.4% 5.3% -6.9%
Greater Brisbane Brisbane - North U 55.1% -2.4% 1.3% 3,379 16.4% 5.9% -10.0%
Greater Brisbane Brisbane - South U 50.8% -2.0% 3.2% 8,043 25.1% 5.5% -8.9%
Greater Brisbane Brisbane Inner City U 63.5% -1.1% -4.3% 16,396 22.3% 5.9% -7.7%
Rest of QLD Darling Downs - Maranoa U 42.9% -3.4% -2.3% 172 8.2% 5.3% -8.8%
Greater Darwin Darwin U 66.2% -7.8% -16.4% 707 3.6% 6.9% -11.4%
Rest of NSW Far West and Orana U 54.0% 2.2% 10.4% 131 7.0% 4.6% -10.2%
Rest of QLD Fitzroy (Central QLD) U 53.7% -5.3% -20.3% 470 5.2% 7.1% -12.1%
Rest of QLD Mackay U 51.6% 0.4% -18.0% 620 5.8% 5.4% -7.3%
Greater Perth Perth - Inner U 48.0% -6.3% -16.8% 4,031 8.3% 6.6% -12.0%
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  ["title"]=>
  string(55) "Boost for investors as new app sets up off-site bidding"
  ["alias"]=>
  string(55) "boost-for-investors-as-new-app-sets-up-off-site-bidding"
  ["introtext"]=>
  string(133) "

Property investors are now able to identify and bid on auctions remotely using a new live-streaming app launched by Gavl.

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Called “Request an Auction”, the new functionality enables users to watch and bid on any Sydney or Melbourne auction remotely.

Through Gavl, prospective buyers are now able to register to bid on their preferred auction. The platform will obtain permission from the listing agent and confirm within 48 hours.

Vendors can also request to have their auctions broadcast to a larger buyer audience.

Co-founder Joel Smith said that auctions streamed on Gavl attract 47 per cent more viewers than traditional ones.

He said that Request an Auction will be valuable for remote buyers.

“Buyers are able to have Gavl attend any auction they nominate, so they will never have to miss out on an opportunity due to logistical complications in physically attending the auction.

“Vendors, too, have the opportunity to directly book an auction with us, so they can open up their event to buyers all around the world. With more potential buyers, they’re giving their property the chance to receive more bids and maximise their sales result.”

Mr Smith said that prior to the Request an Auction app, buyers were limited to what they could achieve through the Gavl technology.

Gavl is a live-streaming and bidding platform for real estate auctions.

Mr Smith said that it has streamed more than 6,000 auctions, which have achieved 3.5 million views from 50 countries.

Gavl’s Request an Auction function is currently being offered in Melbourne and Sydney only.

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Boost for investors as new app sets up off-site bidding
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  ["title"]=>
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  ["introtext"]=>
  string(278) "

Having to split her time between Hong Kong and her original base of Sydney has not slowed Julia Tita’s goal of building a high-performance Australian property portfolio. Instead the resulting alterations to her strategy have positively impacted her investing success.

" ["fulltext"]=> string(3579) "

Having recently purchased her 6th property, Julia joins host Tim Neary to discuss her journey, share her ups and downs over the years, and reveal her thoughts on why some properties are better than others.

Julia also explains why she no longer makes a move without the help of a buyer’s agent, why working with a strong team of specialists is extremely important and discloses her long-term property ambitions.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

Why is Australian property so unaffordable?
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Going global
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AREAS MENTIONED:

Eagleby
Charters Towers
Townsville
Brisbane
Paddington
Sydney
Orange
Melbourne 
Glen Iris
Bondi

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["secure"]=> int(0) ["page_description"]=> string(11) "sample desc" ["page_rights"]=> NULL ["robots"]=> NULL ["access-view"]=> bool(true) } ["initialized":protected]=> bool(true) ["separator"]=> string(1) "." } ["displayDate"]=> string(19) "2018-06-18 03:15:56" ["slug"]=> string(72) "18171:how-a-move-to-hong-kong-impacted-julia-s-australian-property-goals" ["catslug"]=> string(28) "45:smart-property-investment" ["link"]=> string(92) "/investor-stories-1/18171-how-a-move-to-hong-kong-impacted-julia-s-australian-property-goals" }
How a move to Hong Kong impacted Julia’s Australian property goals
object(stdClass)#1214 (52) {
  ["id"]=>
  string(5) "18159"
  ["title"]=>
  string(88) "‘Common’ referrer practice of being paid on both sides of the fence coming to an end"
  ["alias"]=>
  string(82) "common-referrer-practice-of-being-paid-on-both-sides-of-the-fence-coming-to-an-end"
  ["introtext"]=>
  string(246) "

The practice of property investment firms sharing undisclosed kickbacks among the supply chain involved in development sales will be outlawed in NSW on 1 July this year under the Real Estate Reform being handed down by regulators in NSW.

" ["fulltext"]=> string(2238) "

Property commentator and valuer, Suburbanite’s Anna Porter, said the reform will address conflicts of interest.

She said they arise when a mortgage broker, accountant or financial planner receives part of the commission from the property firm, who receive their fees from the developer or seller.

“This puts the broker into a position by which they are being paid on both sides of the fence,” she said.

“Until now this has been a grey area and there was nothing stopping this practice.” 

Ms Porter said this has been a common practice in the industry.

"Some well-known mortgage broking firms openly admit to receiving $5,000–$10,000 per referral in their pocket.”

She also said this process has been going on for decades.

"Property investment firms commonly pass some of their commission on to the mortgage broker, accountant or financial planner as a reward to them for passing on the referral. This means that many brokers or financial service providers are making significant amounts of money just to refer on to a property firm, often totalling hundreds of thousands of dollars a year," Anna Porter said.

Ms Porter said the Property, Stock and Business Agents Amendment (Property Industry Reform) Bill 2017 will be in force from July this year, and will prohibit this practice unless the broker or referring partner also holds a real estate industry license.

"Under the new laws, if the broker takes a referral fee from the property firm, they will have to be a licensed real estate agent and also hold a corporation’s license,” she said. 

“Subsequently, every transaction that they receive a referral fee from, they will be putting their license up against the transaction and taking full liability for the conduct, practices and outcome of that transaction, even if they have little to do with the transaction; they are a party to it financially and therefore take as much risk as everyone else in the transaction.”

Mr Porter said where a referrer holds a real estate license, and receives a part of the sale commission, they may find themselves in breach of the ethical requirements under the act.

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‘Common’ referrer practice of being paid on both sides of the fence coming to an end

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