Once considered somewhat of a protected species, negative gearing reform currently sits squarely in the sights of both sides of politics.
The Federal Government and the Opposition are each looking at major shake-ups to negative gearing (the practice allowing investors to offset losses on investment properties against their taxable income, in order to gain a tax break).
The common argument against negative gearing is that it encourages investors to snatch up properties which first homebuyers would like to purchase, blocking them from entering the market, as well as potentially pushing up house prices, making them further out of reach of the average first time buyer.
Both parties will take their policies to the next election, and it could be first home buyers who emerge victorious.
How it could work
Labor’s proposed policy, which would restrict negative gearing to new housing stock, would also see the capital gains tax cut from 50 per cent to 25 per cent, with aims to raise $32 billion over ten years.
By restricting investors’ access to negative gearing only for new houses, Labor hopes for a triple threat; to boost new housing supply, lower current prices and create a more level playing field for first home buyers. Another bonus would be the proposed creation of 25,000 construction jobs a year to keep up with the increased demand for new builds.
The changes would apply from July 2017 and leave existing investments, prior to this date, unaffected.
On the other hand, it may not be so simple.
The Government has warned the proposed policy could in fact make it harder for first home buyers to purchase a newly-built home, as they’d still be competing against investors, who are now restricted to a smaller market of properties, not to mention trying to secure a block of land.
Regardless of which plan gets through, first home buyers are set to benefit from a more even playing field when searching for an established home and the economy will benefit overall from a boost to demand for new housing.
Whether you’re a first homebuyer or investor, contact Naked Edge Real Estate today.