Changes to negative gearing will have an impact on the property market. Of course, it will depend on how extensive any changes are, but even minor changes will flow through to the market. There are two things to consider: the impact the changes will have on an investor’s cash flow, and if the market will slow down because of the changes.
When making a decision on whether to invest in property, it’s our position to look first at a location and property’s prospect for growth. How much the property will cost to hold is a secondary factor, and one where the tax advantages are on offer. Remember, though, these tax factors are even less pronounced with an SMSF.
So, should you wait to invest? Well, that depends. If you are looking to buy new property and don’t have multiple investment properties already, then these changes will have no impact on you (aside from the CGT when you sell). If you do have a number of properties or are looking to invest in existing property, then you may be affected. The other thing you must consider is how this tinkering by the government will affect the residential property market.
The proposed changes to negative gearing are further proof of how property as an asset class is becoming more complex. Currently investors are making investment property decisions of $500,000+ with no qualified financial advice. This is where advisors need to play a bigger role – every property investor, before speaking to an agent and looking at property, should get advice on risk, cash flow, gearing, finance, etc. The only qualified people to give that advice are financial advisers, and they will need to carefully consider the likely impact of any changes to negative gearing.
While there has been heated discussion on why changes need to be made to negative gearing, none of them stack up. The unaffordability myth is just that – a myth. It’s our philosophy you should invest when you have the capacity to do so, but only in good-quality property with the credentials to perform.
My final word to investors is not to worry unduly. There’s a lot of water to go under the bridge yet, and I suspect any changes to negative gearing will be significantly watered down before they get through both houses of Parliament. Expect to see any changes that do occur to be grandfathered.
Bill Nikolouzakis, Director, Nyko Property