What impact will Labor’s changes to negative gearing have on sellers?

If you’re a homeowner and you are thinking of selling your property, you could be forgiven for thinking you won’t be affected by federal Labor’s cataclysmic proposed changes to negative gearing.

Not so fast. Under the Australian Labor Party (ALP’s) proposal, negative gearing would be restricted to property investors who purchase new-build rentals. Negative gearing, which allows landlords to deduct revenue losses from their annual taxable income, has long been used by mum and dad investors as an effective wealth-building strategy. But if the ALP wins office and introduces the changes as planned on 1 January 2020, thousands of everyday Australians could be forced out of residential real estate and into more volatile investments such as shares over real estate.

Industry experts predict property prices across Australia will drop significantly under the proposal, impacting owner-occupiers and investors alike. Data recently released by SQM Research forecasts significant falls of up to 12% nationally. Based on the current average Brisbane house price of $675,000 that equates to a staggering $81,000 drop in value in real terms in that city alone.

Moreover, financial experts warn the plan threatens to place our entire economy in a precarious position, with the pain to be felt by all Australians in a variety of ways. Construction activity is expected to experience a slowdown of up to 30% based on current levels, leading to a major spike in unemployment within the critical building and real-estate segments. SQM Research predicts state governments would also be hard hit, with stamp-duty revenues set to decrease by up to $2.3 million, placing the funding of schools, roads, and hospitals in jeopardy. Furthermore, superannuation funds across the country would fall in value as a result of the predicted downturn in property prices, affecting the retirement savings of 18 million Australians.

To find out more about how the proposed changes could affect your upcoming sale contact your local Raine & Horne agent today.