The mention of changes to negative gearing legislation has investors, financial experts, and the government discussing how this could impact on the Australian Property Market. The government is suggesting that the property market will become an even playing field for first home buyers, owner-occupiers and investors. However, financial experts suggest that the changes could have a negative, rather than positive impact on the Australian property market, and possibly the economy.
The Australian Prime Minister, Malcolm Turnbull, has said that there will be no changes made to negative gearing before the election. However, it is a topic of conversation in parliament, due to Sydney and Melbourne housing prices being unaffordable for many home buyers.
Record prices in Sydney and Melbourne are said to be due to the mining boom, record low-interest rates, high demand, and low supply. However, many first home buyers also say that negative gearing is to blame as it gives investors a market advantage.
A recent government inquiry into housing affordability found that speculative investors dominated the housing market, where these investors were pushing first home buyers out of the market. Auctions being one of the main avenues where first home buyers felt they were unable to compete with investors. Realtors said on that many occasions first home buyers were unable to buy a property due to being outbid by an investor. These first home buyers would then end up renting the property from the investor because they felt drawn to the property.
According to home loan data, in 2015, more than 50% of new home loans were investor related. The government suggests that while negative gearing has worked well to provide a rental property that is affordable, it prevents young couples and families from buying a home. Therefore, it is time for a policy review.
In a recent survey conducted by the Real Estate Institute of Queensland (REIQ), landlords and members said that they would possibly abandon property investment as a strategy if negative gearing changes took effect. More than 14,000 members confirmed that changes to negative gearing would have a profound effect on the property market in Queensland. Some 79% of respondents said they would find an alternative form of investment if legislation changed negative gearing.
REIQ chairman, Rob Honeycombe, said the proposed changes would have a ripple effect through the property market with supply outweighing demand. Undoubtedly, with no need to keep rents low so that property met negative gearing constraints, rents would rise.
Property market experts have suggested that around 2% of value could be wiped from the property market if negative gearing is restricted. This value is said to be potentially worth around $130 billion. At present, it is estimated that the Australian residential property market is worth around $6 trillion.
The economic impact that this could have on the Australian economy could be significant. Therefore, policy writers will need to make changes that were considerate of many factors so that they didnt have detrimental consequences to the market.
Property investment is a wealth generation tool that gives the property owner greater financial security. Most property investors prefer to invest in an asset that they can see and feel, and they also like to diversify their portfolio by buying a mixture of property.
Many property investors typically use the equity that theyve built-up in other property to buy another investment property. Equity occurs when the amount you owe on a property is less than the capital value of the property. For instance, lets say your home is worth $700,000, but you only owe $300,000 on the property. You, therefore, have $400,000 in equity that you can use to secure an investment against, or you may like to refinance your mortgage making it more affordable.
Of course, before you refinance it pays to research the market and compare home loans. Financial advisors suggest a home loan that is at least 1% less than your current home loan will save you more long-term.
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