The Labor Party’s proposed reforms to negative gearing and capital gains tax (CGT) could create two types of property market – primary and secondary – despite promises from Canberra that the changes would not affect existing investors as they would be grandfathered.
RiskWise suggested that buyers would want to pay less for existing property, as they wouldn’t be able to enjoy the current taxation benefits once the proposals were enacted, driving the fair market value of it down and thus creating two markets.
“[Grandfathering] sounds good on paper, but the changes will effectively create a primary market, comprising new properties and existing investment properties that qualify for negative gearing tax concessions, and a secondary market, comprising all second-hand dwellings that … do not qualify for these benefits,” RiskWise chief executive, Doron Peleg, said.
“This will have a significant impact on both buying and selling decisions by property investors with a flow-on effect to dwelling prices.”
Peleg warned that property owners looking to retain these benefits would have to hold off selling until the market adjusted to the reforms, which could take many years.
“This is a key reason for investors, even now, to sit on their hands and to wait for the implementation of these taxation changes and only then to reassess the market and to buy for lower prices,” he said, adding that we could already be seeing this as the property sector experiences accelerating price reductions and declining auction clearance rates.
Labor’s proposed changes would limit negative gearing to new housing the reduce the discount on CGT from the current 50 per cent to 25 per cent.