Investors could return to falling property markets across the nation before the year’s end, in a bid to beat proposed changes to negative gearing and capital gains tax, experts say.
Labor will introduce changes to negative gearing concessions and the capital gains tax discount on January 1 next year if it wins the May election, shadow treasurer Chris Bowen announced on Friday.
It is six months earlier than the mid-2020 start many had anticipated for the reforms, which will see negative gearing limited to newly built homes and existing investment properties, and the capital gains tax discount halved.
“Many people thought July 1 next year was the most likely start date,” said Domain economist Trent Wiltshire. “It’s probably a good thing [they’ve chosen an earlier date], it means the uncertainty will end a bit faster.”
A rush of investors back to the market is unlikely, Mr Wiltshire said, but the January 1 start date is likely to bring forward some investor activity before year’s end.
“It will be a pick-up, but it won’t be huge,” Mr Wiltshire said. “I think that will bring some support to prices in late 2019.”
Mr Bowen said the January 1 start date was a “good smooth time for implementation” because the Christmas and New Year period was a traditionally quieter time for property.
NAB chief economist Alan Oster said there was potential for an increase in people looking to sell towards the end of this year if Labor was elected.
“It’s possible that people may want to sell before this new reform is introduced, but it’s hard to tell,” Mr Oster said.
He added while market activity was generally quieter over the summer break, the anticipation around the proposed start date may change buying and selling behaviour.
Mr Wiltshire noted it could result to a boost in activity in December, a traditionally quieter month for the property market, with more auctions and sales likely to run right up to Christmas than in other years.
Grattan Institute fellow Brendan Coates said a Labor victory would likely bring forward investor purchases to the second half of this year, resulting in a lull in activity next year.
“I don’t think it would be a long lull,” he said. “What’s happening with house prices and lending in particular, is more likely to [sway investor activity].”
As a result, he noted, any investor return this year would be small. Investors would weigh up the savings from taking advantage of current tax settings versus the savings that could be made on property prices if the market continues to cool, Mr Coates added.
“In the long run the value of tax concession to the investor is only worth a couple of per cent on the purchase price. So [if investors think] prices are going to fall another 6 per cent or more, they’re not going to try get in before January 1,” Mr Coates said.
He added that Labor’s policy may also boost sales for new apartments and increased demand could help the weaker construction sector, which has been affected by the market downturn.
ANZ senior economist Cherelle Murphy said the bank expected investor demand for housing to be brought forward if Labor wins the election.
“Tax-sensitive buyers will probably be keen to take advantage of the time delay before the policy change kicks in on 1 January 2020,” Ms Murphy said.
“At a time when investor demand is sluggish and heavily impacted by tightened lending standards, that could prove to be a positive for the housing market.”
SMH /MAR 29, 2019