Possibility of negative gearing changes could increase investor activity

By Phil McCarroll | 18 Feb 2016
Australians’ love of getting one over on the tax man could see a rush of people try to enter the market if any plans to alter negative gearing are adopted.

Ongoing speculation around tax reform over recent months has cast the spotlight directly onto the issue of negative gearing, with it appearing increasingly likely that there will be some alterations to the scheme in the near future.

The Federal Opposition has provided some clarity to the situation, with leader Bill Shorten announcing that under the Labor Party negative gearing will be restricted to new properties only.

Investors currently using negative gearing would be grandfathered under Labor’s proposal, while the Federal Government has not announced their intentions but is believed to be considering a cap on the number of properties or amount of money that can be claimed through negative gearing.

While no changes are yet set in stone, Michael Beresford, director investment services at real estate investment advisory firm OpenCorp, said future changes could result in footrace among investors to take advantage of current arrangements.

“I think we would see an increase in investment activity prior to any changes to negative gearing being implemented,” Beresford said.

“Australians love taking something from the tax man and a lot of people wouldn’t want to miss out on that chance,” Beresford said.

The idea of changes to negative gearing have drawn the ire of many property and construction lobby groups, but Beresford said people should take a deep breath before sounding the death knell for property investing.

“Nothing is guaranteed yet and there are still so many what ifs about what’s going to happen,” he said.

“But I’d encourage people to try and understand what’s being proposed and what isn’t. I don’t think we’re ever going to see negative gearing removed entirely, especially not straight away, and it would be too unpopular for a government to make any cap or that sort of thing retrospective.”

While there are no guaranteed changes for the system just yet, Beresford said any change that is enacted would have some effect on the investment landscape.

“If there’s no retrospective application of whatever changes are announced, I don’t think you’re going to see investors start to desert the market.

“If we do see something introduced like Labor is proposing, then I think we’ll see a realignment of the market. New investors will probably start looking to new properties and we might see an increase in the number of purchases in that sector.”
 

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