As an existing landlord, it could be tempting - almost understandable – to dismiss the current political firestorm over federal Labor’s cataclysmic proposed changes to negative gearing and the capital gains tax (CGT) discount. After all, current property investors will continue to enjoy the tax breaks and significant financial benefits of negative gearing and the CGT break, regardless of whether ALP wins office and introduces the policy as planned on 1 January 2020.
It’s now been very well publicised, the Australian Labor Party (ALP) will restrict negative gearing to landlords who invest in new-build rental properties if they win federal office in 2019, while the CGT discount will be slashed to 25% from 50%. While it is true current landlords will not be subjected to the policy change, industry experts and economists warn the plan could place the entire Australian economy in peril, while its fair to expect the changes may also contribute to a decline in stock levels available to investors, which will in turn push up rents.
The Real Estate Institute of Australia (REIA) recently revealed property prices could plummet nationwide under Labor’s proposal, impacting all current and prospective landlords. A recent study released by SQM Research predicts prices to fall between 5 – 12% on average across the capital cities between 2020 and 2022. Sydney would hit hardest with an average dive of between 9 and 14%, with Adelaide expected to experience significant drops too.
But the pain of falling property values is just the beginning, economists warn. New builds are projected to drop by as much as 30% under Labor’s plan. The resulting spike in unemployment in the all-important construction and real estate segments would increase overall economic instability and make finding a reliable tenant more difficult for all landlords.
State governments will also be impacted severely in the form of an estimated $2.3 billion reduction in stamp duty revenue. In real terms, that means fewer dollars in state coffers to fund the hospitals, roads and bridges, and schools. Landlords and non-property owners alike could also see their retirement nest eggs slashed, with superannuation funds projected to take a significant hit due to their reliance on real-estate investments.
For more information on how the ALP’s proposal might impact your investment property portfolio, or to find out how you can help, contact your local Raine & Horne agent today.