The Pros and Cons of Investing in Uncertain Times
With a Federal election on the way, should commercial property
investors wait until the dust settles or go ahead with their current purchase plans? Here’s a quick Q & A to help you resolve the quandary.
What proposed changes are investors worried about?
A Labor government would halt negative gearing of established investment properties
purchased after July 1, 2017. Labor also intends to increase Capital Gains Tax payable on the sale of all investment properties, whether established or new, bought after July 1, 2017, raising the current rate from 50 per cent to 75 per cent of any capital gains accrued when the property is sold.
Will changes to negative gearing improve housing affordability?
Opinions are divergent on this! Michael Yardney, a director of Metropole Property Strategists, can’t see how, as affordability is affected by house prices and wages growth (which affects how much the banks will lend)
Yardney’s opinion is that there is nothing in either party’s policies that will be likely to improve wages growth or increase affordability, so to make housing more affordable for first-time buyers, Labor will have to either “disenfranchise more than seven million current home owners and reduce the value of their homes to please a small group of aspiring first-time home buyers or build more affordable properties,” adding that “I understand the difficulty first home buyers have getting into the market. I’m just saying removing negative gearing isn’t the answer.”
What will happen to property if Labor wins the election?
Yardney says we are likely to “experience a mini-boom 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.”
Yardney advises that it’s a time to learn from history and remember that many changes in the past that were supposedly going to seriously impact property’s performance may have caused short term uncertainty but 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,” says Yardney. “Those who remain focussed on accruing quality properties and 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 investment property.”
Is it too late to get into this property cycle?
We’re now in the mature stretch of the property cycle
, but Yardney feels it’s likely that all capital city property markets will end up higher by the end of the year than they are now; “driven by slow and steady economic growth
, mild wages growth, population growth
, falling interest rates and rising consumer confidence after the election.”
His conclusion: “If you have the means to buy your next 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 like us to think it will!”
For more commentary from Michael Yardney, subscribe to his blog at Property Update