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There has been plenty of talk around Labor’s negative gearing policy and to what extent it could impact the housing market and investors if they are elected in the 2019 federal election. Here are some realities to consider if Labor’s policy is implemented, according to one expert.
“What we’re going to hear a lot about between now and the federal election is negative gearing. My view, [which] is probably completely the opposite of the majority, [is that] it’s going to have a very little impact,” said property investor and head of research at Propertyology, Simon Pressley, on the Smart Property Investment Show.
Mr Pressley asserted that if Labor implements its new policy on negative gearing – as the party has already pledged to do if it seizes power from the coalition in the 2019 federal election – it “will not have the financial benefits that Labor thinks it will”.
“It’s going to be a complete financial experiment. It’s something that's been here since bloody Captain Cook hid it, came here with the first fleet. That’s how long it’s been ingrained into our economic ecosystem. And it affects a lot more than property markets directly,” he said.
“It affects welfare, it affects the construction industry, it affects taxes, it affects a whole heap of things. So, anyone who wants to tinker with that, you’re tinkering with big picture Australian economics and we don’t need that.
“So, that’s why it’s a bad policy... [and] it’s going to do very little to [the] property market.”
Mr Pressley said that negative gearing, in his opinion, should not be abolished or messed with.
“It won’t have a big impact on property prices at all. And if you just sit on the fence… you really are only harming yourself,” he said.
The property investor explained that Labor’s “broadly reported” negative gearing policy would entitle people who already own property before 1 July 2020 to “100 per cent of [the] negative gearing benefits”.
Mr Pressley continued: “So, probably what the first thing [that] will happen is those investors who can afford to invest now will do a big scramble because Labor will say, ‘We’ll grandfather it’. That’s what that means.”
According to Mr Pressley, such a property “scramble” would place added pressure on buyer activity and, in turn, increase prices on the market.
“Again, think of it like stamp duty or land tax, that are also tax policies. If a state government said, ‘We’re going to increase stamp duty’ or make up a figure from $15,000 on average to $20,000, we won’t like it,” he said.
“[For] some people, that will be the reason for not transacting in property.”
Mr Pressley continued: “Some will go, ‘Well, I need to do it anyway. I just got to pay the freight,’ but if that policy stayed in force for [the] next 10 years, probably out to be at six months. It’s just the new norm isn't it? The same with negative gearing.”
Host Phil Tarrant added that around 90 per cent of all property investors in Australia own one or two properties at the most, and that having a small property portfolio is generally an indicator that these people are “not really wealthy”.
“When you get to six or more properties… that’s when you might start thinking that you’ve got a fair bit of wealth,” he said.
Mr Pressley claimed that the actual dollar amount that people are negative gearing on their tax returns averages out at $1,600.
Therefore, Labor’s negative gearing policy, according to Mr Pressley, is unlikely to create a significant trickle down of wealth from the richest property investors.
However, if Labor does win the 2019 election and implement their negative gearing policy, Mr Pressley advised that property investors will have to “Suck it up, move on, and focus on your future.”
“Focus on the positive stuff because that’s… [where] the opportunities are,” Mr Pressley advised.
According to the property investor, Tax policy is “nowhere near the biggest influencing force” over the property market.
Mr Pressley concluded: “Now, those who think it is and want to sit on the sidelines, you’re only going to harm yourself. If you don’t invest because you don’t get the election outcome you want, [and] negative gearing gets scrapped, well, how’s that going to help you in retirement?”
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.