A leading real estate network has observed that there has been a rise of investor-buying activity in one capital city slated for high growth.
According to James Trimble, general manager of Raine & Horne, investors are buying up property in Adelaide with the possibility of Labor’s negative gearing proposal coming into effect if they succeed at the upcoming federal election.
“Some investors aren’t waiting to see if there will be a change of government on election night and are buying up properties in Adelaide now to ensure they don’t miss out on the current negative gearing benefits for established properties and the 50 per cent capital gains discount,” Mr Trimble said.
“It’s not 100 per cent clear yet when the grandfathering period starts and ends for the property changes, which will prove calamitous for many markets around Australia. There is a difference between a policy promise during an election campaign and an act of parliament, so we still don’t know the full details.
“The expectation is the current benefits will end on 31 December, so this will give investors six and half months to lock in an investment and earn the existing tax benefits. After this deadline, negative gearing for established properties will be gone and the discount will drop to 25 per cent.”
He believes that the smartest option would be to purchase properties now as they will retain the benefits of negative gearing no matter which party wins the election.
This observation is being seen on the ground by John Cullen, principal of Raine & Horne Kurralta Park, noting that the changes to taxation policy was having a noticeable impact on property sales from investors.
“There is a definite correlation between investor activity and fears about what will happen after the election,” Mr Cullen said.
“The fear of missing out on negative gearing is driving some activity for buyers, while some are waiting to see who will win on Saturday.
“Some owners are hoping for a Labor win as this will [spur] a surge in investor demand for units in Kurralta Park and surrounding suburbs to lock in existing tax benefits before the end of the year.”
Looking at Kurralta Park, the median price for a two-bedroom unit is $210,000 and a weekly rent of $285, which results in a yield of 7 per cent.
“With interest rates on hold this week, it means that with the lowest variable rates around 3.44 per cent, it is possible the negative gearing changes won’t affect some investors,” Mr Cullen added.
“However, when the time arrives to sell, the reduced CGT discount will have a significant impact on investor profits in Kurralta Park.”
Meanwhile, Gawler in Adelaide’s north is seeing four-bedroom houses for $385,000 and renting for $390 a week.
Gwen Levesque, co-principal and head of property management at Raine & Horne Gawler, said this results in a gross rental yield of 5.4 per cent, which means investors in this area could be more vulnerable to changes in negative gearing.
“After costs such as mortgage interest, maintenance expenses and management fees, most investors are still using negative gearing in this region,” Ms Levesque said.
“Many of our new rentals are new-build properties, so they won’t be affected immediately… but changes to how established properties are taxed will hurt our market significantly.”