With the likelihood of a Labor government on the horizon come May, potential investors should be taking action now.
Labor has made their intentions with regard to negative gearing policy clear – no more negative gearing tax advantages for investors who buy established property, only those who buy new builds.
This is a welcome change for many, but for those of you who have been patiently waiting for a softer property market before striking on an investment property, it may not be so welcome.
Negative gearing for those of you who aren’t aware is contributing financially to meet the mortgage repayments on top of the rental income. Many property expenses such as property management fees, Owners Corporation fees, council rates, some repairs etc can also be tax deductible.
Most property investors are regular people, no Aston Martin DB11’s in the garage, no Chanel bags gracing the walk-in wardrobes. They scrimped and saved to buy a property to give themselves a better chance at a comfortable retirement.
Investors in many cases rely on negative gearing benefits to help fund their property purchase and the impending cessation of this benefit could see many investors think twice before entering into the Australian dream of becoming a Landlord.
So, what does this mean for the current property market? With less investor activity due to a tougher lending environment, many investors are struggling to obtain finance. This has led to a ‘sweet spot’ in the Melbourne market in the range of circa $600,000-$1,400,000 – the price point where many investors used to dominate much to the disgust of first home buyers.
If you are one of the fortunate property investors who has been able to secure finance and wish to lock in the advantage of negative gearing, then now is the time to strike! No more sitting on your hands waiting for the market to bottom out – the time is now.
I urge you to still do thorough research into the market and the particular property you wish to purchase. Asset selection when buying as an investor for the long term is critical.
Compounding capital growth remains king and comes from a strong land value component to the purchase as the land is what is appreciating.
You may be thinking, why not just buy a new build and negatively gear? Buying new builds has many red flags for investors, namely very low land values components due to the higher density designs, potentially inferior build quality and oversupply in the market leading to disastrous capital growth.
To conclude, if negative gearing is abolished on all established property purchases then don’t despair, property is still and always will be a fantastic vessel to increase your financial position. You do need to remain vigilant on the asset selection, play the long game and time the market to suit your situation, not have the market time your purchase.
Related reading:
"Public deserves to know negative gearing timeline" says property body
"Labor's negative gearing policy would cost the budget $32 billion"
Changes to negative gearing "won't stimulate housing demand"