South Australian investors buying to beat government change

The prospect of the Federal Election on 18 May and a possible change of government, has prompted some investors to snap up some property bargains in Adelaide.

“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% capital gains discount,” said James Trimble, General Manager, Raine & Horne.

“It’s not 100% 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%.”

“The smart money is buying investment properties now as they know they will hold the current benefits regardless of whether red or blue wins next week.”

In Adelaide’s inner southwest, John Cullen, Principal of Raine & Horne Kurralta Park, said the prospect of changes to property taxes was influencing sales in his region.

Mr Cullen said, “There is a definite correlation between investor activity and fears about what will happen after the election.

“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 week.

“Some owners are hoping for a Labor win as this will 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.

In Kurralta Park, the median two-bedroom unit price is $210,000 with a weekly rent of $285, which is a very healthy 7%. “With interest rates on hold this week it means that with the lowest variable rates around 3.44%, it is possible the negative gearing changes won’t affect some investors,” Mr Cullen said.

“However, when the time arrives to sell, the reduced CGT discount will have a significant impact on investor profits in Kurralta Park.”

In Gawler in Adelaide’s north, investors are snapping up 4-bedroom houses for about $385,000, which are renting for $390 a week.

“This represents a gross rental yield of 5.4%, which means that after costs such as mortgage interest, maintenance expenses and management fees, most investors are still using negative gearing in this region,” said Gwen Levesque, Co-Principal and Head of Property Management, Raine & Horne Gawler.

Over the last 12 months, Ms Levesque has more than doubled the rent roll held by her office. “Many of our new rentals are new build properties, so they won’t be affected immediately,” she added. “But changes to how established properties are taxed will hurt our market significantly.”