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Labor’s plan for negative gearing may not have the widespread effect that experts are concerned about according to one property commentator.
The extent of Labor’s proposal to remove negative gearing on new property is described by Anna Porter, property commentator, valuer and CEO of Suburbanite to be impacting 26 per cent of the property market, as this portion consists of the investors currently in the market today.
“Many of these investors are not the top-end of town and are really just mum-and-dad investors with only one property they are relying on to be a major part of the retirement plan or debt reduction strategy prior to retiring,” Ms Porter said.
“At just 26 per cent of the market, it is unlikely the proposed reforms will have a sweeping negative impact on the market as the majority of the property market is driven by people needing somewhere to live which is a tax-free asset.
“So, tax reform will not change the decisions of 63 per cent of the property owners and buyers.”
Ms Porter also reiterated her stance on negative gearing, where in August she described the vehicle as “simply icing on the cake for investors, it is not the whole cake”.
“Before even worrying about the tax treatment, which is really all negative gearing is, investors need to really understand why they are investing, Ms Porter said.
“This is usually not about tax at a fundamental level but rather about wealth building.”
Although Labor’s negative gearing plan still allows for the vehicle on new properties, Ms Porter is concerned that those properties that can be negative geared are not the kinds of properties that investors should be considering, with a bulk of new properties located in oversupplied locations, which she identified as south-east and south-west Queensland and across Sydney’s Northern and Western suburbs.
“Oversupply will put downward pressure on values and on rental returns. This will mean investors can easily lose more annually in their capital value or lost rent through vacancy than they would have made through the tax benefits,” she said.
“Think of it this way, you get back say $5,000 a year in tax benefits from your investment property because you bought new over established but the capital value retracts by $20,000 per annum due to not getting the investment fundamentals right.”
“Or[, you] could have made an additional $30,000 per annum in capital growth in an established property but you passed that up because you wanted to lock in your $5,000 a year in tax back. Just doesn’t make sense when you crunch the numbers.”
Negative gearing occurs when the rental income of a property is not enough to cover the total costs of managing the rental and re-paying the interest portion of the loan.
Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.