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If Labor’s negative gearing changes come to pass, the way property investors operate in Australia could change dramatically, a prominent real estate CEO has predicted.
Starr Partners CEODriscoll said that Labor’s aim to limit negative gearing to new apartments and house packages is likely to backfire.
“Labor’s proposal to limit negative gearing to new developments and halve the capital gains tax coincides with other recent changes in the property market: a wave of new apartments and stringent macro-prudential measures,” he said.
“This will create an extended period of property price stagnation.
“If our own investors are impeded further, this is likely to lead to more competition from foreign buyers.”
Mr Driscoll pointed to a report released last month by Chinese international property portal Juwai, which named the “desire to get a bargain while the market is soft” as a major factor attracting Chinese buyers to Australia this year.
He added that, at the same time, many other overseas property markets are tightening up for Chinese buyers.
“Despite Australia’s tight regulations on foreign investment, other overseas property markets are tighter, including China, Canada and New Zealand,” Mr Driscoll said.
“Unlike in Australia, the Chinese lack many appealing alternative investments at home and, due to government crackdowns on peer-to-peer lending, private equity funds and with the majority of their property being leasehold, many investors are forced to look elsewhere.
“Labor’s proposal to level the playing field for first-home buyers will create unique opportunities for foreign buyers looking to capitalise on a ‘softer’ market, and I’m expecting to see this kind of investment gain further momentum this year.”
Mr Driscoll said that in the wake of these challenges, some Australians may start to look elsewhere to invest.
“I think we might see the emergence of savvy Australian investors learning from foreign buyers and look to invest in property overseas themselves,” he cautioned.
“Although New Zealand’s parliament clamped down on non-resident foreigners from buying existing homes last year, Australians — among the largest purchasers of homes in New Zealand — were exempt from this ban.
“Whether you’re looking for a home to live in or an apartment as an investment property, it’s relatively easy for Australian citizens to invest in New Zealand, and it can take as little as three to four weeks to complete a house purchase.”
Mr Driscoll warned this scenario could lead to a potentially absurd trend developing.
“If we’re not careful, we could find ourselves in an unusual situation wherein we see an influx of overseas investors buying property here, while our own investors start to purchase overseas.”
Gearing is defined as the relationship between debt and equity of a company that shows how much of its operations are financed by lenders or shareholders.