Plans by the Labor party to “grandfather” existing negative gearing arrangements will not protect property investors from feeling the impact of any changes to to the tax incentive, according to the Real Estate Institute of Australia (REIA).
Labor’s proposed property tax reform would see negative gearing restricted to new builds only and the capital gains tax discount halved from 1 July 2017, but investors who have purchased established properties and have them negatively geared before that date would be allowed to continue under the superseded arrangements.
However, REIA president Neville Sanders said those arrangements will do little to protect investors from market disturbances caused by the proposed changes.
“With negative gearing only available for investment in newly-built residential property, existing investors will find it more difficult to sell their properties as other investors will show little interest in existing property with inevitable falls in value to follow,” Sanders said.
“These falls in value will in time translate to a lower standard of living in retirement as many mum and dad investors have purchased property as a means to improve their retirement living as independently funded retirees.”
Dan White, director of major real estate franchise Ray White agrees with Sanders. He said Labor’s changes could see up to a third of all possible buyers for any property disappear.
“We should also remember that property investors are not just landlords – everyone who has any financial interest in property including the 67% who own their own home as well the 18 million who have a stake in property through their super is ultimately a
property investor too,” White said.
“If this policy were to become reality, immediately a third of the buyers who were previously competing won’t be there when the time comes to sell. The only outcome of such a massive decrease in competition can be price falls, and areas where there are more investment properties will suffer the most.”
