Wednesday, February 17, 2016

Change is in the air

We have always believed that property investing is just the same as being in business. Property investors receive rental income and incur costs such as borrowing expenses, maintenance, insurance etc. 1.3 million investors across the country are utilising the ability to offset losses incurred from their property portfolio against their tax liability. This has been common practice for many decades, except for a short period when former Treasurer, Paul Keating attempted to remove it 30 years ago.

The Federal Labor Party's proposed changes have firmly placed negative gearing back in the spotlight. The proposal is to remove negative gearing on existing houses, as well as to reduce the capital gains tax discount from 50 per cent to 25 per cent. Proposed changes would apply from July 2017 but not retrospectively and the tax concessions will still be available for newly built homes.

What do we think the impact will be here in SA? 

Given South Australia has a 'calmer' property market compared to the eastern states, we don't foresee a drastic drop in housing prices. Many landlords may hold onto their investment properties to ensure they can take advantage of the 'grandfathered' benefits. 

With a lot more pressure for properties to achieve a positive cash flow, there may be less incentive for property investors to enter the market. The competition we are currently seeing in popular investment areas is likely to reduce and as a result, housing price growth may slow.

With that in mind, we anticipate a change in the buyer profile in the low to mid bracket of the market.

What about the rental market? At a broad level, we don't anticipate significant movements in rental prices.

The biggest impact would likely occur in the popular 'hot spots' for tenants. If investors are not as active, the supply of new investment properties coming onto the rental market will reduce. As tenants struggle to secure properties, we expect to see rental increases in these pockets in the shorter term. This is until tenants become home owners themselves which would assist in neutralising this effect. 

So what properties might investors look to? 

Newly constructed homes as well as cash flow positive homes. We expect to see a shift in investors' strategies to focus on achieving stronger yields (for example units or apartments in inner city locations).

What do we expect to see between now and then? There is the potential to see a rush of investors looking to get into the market between now and 1 July 2017, purchasing those established homes in the popular tenant hot spots. 

Change is in the air and it might be enough to make many investors bite the bullet and act sooner rather than later. 

Suzannah Toop

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