Is Negative Gearing About to Change?

By Louis Christopher on 10 Apr 2014
No Comments yet, your thoughts are very welcome

There was an SBS report in recent days that suggested the Federal Government is looking at a negative gearing tax benefit.

According to the story, “government sources say one of the changes being considered by Treasury is the grandfathering of arrangements for existing investors, but limiting future access to negative gearing so only new properties will be eligible.”
I can confirm from a recent event I attended that this is a possibility.

Of course, while “looking at” negative gearing is one thing, making real change is another. Making such change takes character and strong support from the cabinet.
Now I am rather surprised the media has not picked up on this news story as it would be a serious game changer for the property market and all those who participate in it, presuming the details of the SBS scoop are correct.

“We may well keep the dwelling construction side of the economy going.”

In terms of timing, it would almost be perfect. In my opinion, if you were to time such a repeal, you would do it while the market was in recovery and not while it was having a downturn. Implementing such a change may also hold off interest rate rises.

But in all this, I am also aware that they don’t want to kill the goose that lays the golden egg in terms of a construction recovery. From memory, it was also mentioned at this event that the government didn’t want to kill the economy in an attempt to put the budget back into the black.
For a period of time, I think it could be safely said that if negative gearing was repealed or altered, investors would back off buying into the housing market, which is what those who are demanding lower dwelling prices want to see.

“[This] would be a serious game changer for the property market and all those who participate in it…”

But if the story above is correct in regards to keeping negative gearing on new dwellings, then we may well keep the dwelling construction side of the economy going.
If there was some type of grandfathering provision, then I would expect a massive rush of investors jumping in before the date, and afterwards, a slump. Possibly similar to the introduction and subsequent wind back of the First Home Buyer boost from 2009 to 2010.
Obviously the devil will be in the details, which will presumably become available closer to the May budget.
Interesting days. 

About the Author

SQM Research is an independent property advisory and forecasting research house which specialises in providing accurate property related advice, research and data to financial institutions, property developers and real estate investors. It is founded and run by one of the country's most recognised and respected property analysts, Louis Christopher.

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