Changes to negative gearing could hurt investor demand
Small changes to negative gearing could have big impacts, property pundits have claimed.
The 2017 Federal Budget contains measures to make slight changes to negative gearing arrangements, while leaving the tax concession largely untouched. However, the Australian Financial Review reports property commentators claim these minor changes may have a major impact on investor demand.
Under the new arrangements, investors would no longer be able to claim depreciation on plant and equipment purchased by a previous owner of the property, but instead be allowed only to depreciate plant and equipment items they themselves purchased. SQM Research managing director Louis Christopher told the AFR the change could mean the difference between a tax liability and a tax refund.
"I think that this would be the final nail in the coffin and we will see a significant drop off in [investor demand] in the second half," Christopher said.
"Investors are careful about buying new property and this action combined with APRA's moves will deter a number of investors. I will be expecting there will be less investors in the market."
In a note to clients, BMT Quantity Surveyors CEO Bradley Beer said the changes could have a big impact.
"This change will have a major impact on investors, essentially reducing the annual deductions they can claim, therefore reducing their cash return each year. This could lead to a tighter financial position and may discourage future investors from purchasing a second hand residential property," he said.
Depreciation claims on plant and equipment can currently form a substantial proportion of investors' deductions. Changes to the rules could deter investors from buying established properties, and could put current investors in a difficult position when it comes time to sell. Christopher suggests developers who depend on depreciation benefits as a selling point could find demand dampens.
"The Liberals have not intended for the policy to be draconian, and while saying they would leave negative gearing alone, have actually done the opposite,” Christopher said.