By Michael Yardney
Is this the wrong time to buy your next home or investment property?
Currently there’s a lot of uncertainty surrounding our property markets, much of it related to the outcome of the upcoming Federal election with concerns about how the Opposition’s housing tax policy will affect property.
So it’s understandable that some home buyers and investors are considering putting their purchase plans on hold until after the election.
But is that a smart strategy? Let’s look at this with a quick Q&A:-
What are the proposed changes people are worried about?
If elected, Labor plans to stop negative gearing of established investment properties bought after July 1, 2017
They also intend to increase the Capital Gains Tax payable on the sale of any investment property, either established and new and bought after July 1st 2017, from the current rate of 50% to 75% of any capital gains accrued when the property is sold.
What’s the thinking behind this?
The opposition says it intends to increase housing supply because it’s concerned about housing affordability.
On the other hand a cynic might suggest the real objective is to raise additional tax revenue and save the Budget around $32 billion over the next decade.
Will removing negative gearing really increase affordability?
I can't see how, as affordability is affected by house prices and wages growth (which effects how much the banks will lend.)
There is nothing in either party’s policies that will likely improve wages growth or increase affordability.
So to make housing more affordable for first-time buyers Labor will have to either:
What will happen to property if Labor wins?
It's likely we’ll see a miniboom in established properties as investors bring forward demand and purchase before the new legislation takes effect in July 2017. This is likely to be followed by a lull as demand falls.
We’ve seen much the same occur when the end dates for stamp duty concessions or First Home Owner Grants were announced.
At the same time the property development industry will ramp up supply but if history repeats itself, and it most likely will, the effects will be:
Developers will be overzealous and deliver too many new dwellings.
So what should a property investor do?
Just to make things clear… this is not meant to be a political monologue. These are just my thoughts based on investing through numerous tax changes over the years.
I was an active investor:
My recommendation is that this is not a time to panic or make rash emotional decisions.
Instead it’s a time to learn from history and remember that while all of the above changes which were supposedly going to seriously impact property's performance, while causing short term uncertainty, did little to halt the relentless rise in the value of well-located properties.
History has also shown that investors who chase tax incentives (like negative gearing) or the next fad or hot spot tend to lose out; but those remain focused on accruing quality capital city properties and then hold them for the long term tend to thrive.
The markets are creating a window of opportunity for those ready to take advantage of the upcoming lull and find their next home or investment property.
Isn’t it too late to get into this property cycle?
Sure we’re at a mature stretch of the property cycle, but it’s likely that all the capital city property markets will end up higher at the end of the year they they are now; driven by slow but steady economic growth, mild wages growth, population growth, falling interest rates and rising consumer confidence after the election.
So if you have the means to buy your next home or investment property, now could well be the right time to do it, rather than putting off the decision for a number of months till the dust settles, because the result of the upcoming election is unlikely to matter as much as the politicians would like us to think it will.
ABOUT MICHAEL YARDNEY
Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He’s been voted Australia’s leading property investment adviser and his opinions are regularly featured in the media. Subscribe to his blog at Property Update.