Local and internationally based owners of property in Australia were on tenterhooks about property market election implications in the weeks prior to 18 May 2019.
- A Labour Party win would bring significant disadvantages for property owners, particularly investors.
- A Liberal/National Coalition win would see the status quo prevail.
The outcome – a resounding Coalition win – was greeted with relief by property owners everywhere. Here’s a roundup of the implications.
Negative gearing on established properties remains
The Labor Party had planned to abolish negative gearing on investors looking to purchase established properties. It would have only been available to investors purchasing new properties.
What this essentially meant, is that investors would not be able to claim any tax concessions for new properties purchased after 1 January 2020. Under the current rules, Australian tax payers may be able to claim the interest portion of loan repayments and also some other costs, as an expense, providing the property is available to be rented.
The key benefit associated with negative gearing is that any loss may be offset against other income earned, such as salary, reducing taxable income and therefore tax payable.
The Property Council of Australia was strongly opposed to the tax overhaul.
"And deeply concerned with its potential impacts on housing markets and the broader economy at this uncertain time in the cycle," the group said in a statement.
"In particular, we are concerned with the impact of these tax changes on new housing construction."
The capital gains discount remains
Another tax related reason why the Australian property market has been popular with investors is to do with the way capital gains are treated.
- Coalition Policy - if you own an investment property for longer than 12 months, you only need to pay tax on 50% of the capital gain when you sell. For example: if you achieved a $200,000 gain in the value of your property upon sale, you only pay tax on 50% - ie: $100,000.
- Labor Policy – under Labor’s proposed change, you would need to pay tax on $150,000.
APRA eased lending rules, making getting a mortgage easier.
The other bit of news which has had a positive effect on the property market is the easing of rules around borrowing. The Australian Prudential Regulation Authority (APRA) tightened rules significantly following the Banking Royal Commission earlier this year, making it harder for investors to borrow money for property investment.
APRA has now eased its lending rules and this will help reverse the credit crunch which has put downward pressure on home prices.
ANZ Bank quoted that the household borrowing capacity had been cut by as much as 30% due to APRA’s tight lending rules. This resulted in fewer people securing mortgages and subsequently less investors being able to buy properties.
Property market election implications for international owners
Although international owners of Australian property don’t qualify for tax concessions, they would still have been affected by a Labor Party success in government, if their tax concessions changes were introduced.
That’s because these changes would have reduced the pool of investors in Australia willing to invest in Australian properties, making it harder for international property owners to sell.
Leading up to the election the property market virtually stalled, as people decided to hold off and see which party won on election day. Since the Coalition was returned, and APRA has eased the lending rules for investors, the property market has been reignited.
Core Logic reported that “the monthly decline in national prices has eased for five straight months since it was at 1.1 per cent in December, while auction clearance rates in Sydney and Melbourne have also begun to climb.”