The prospect of a change of federal government and the possible removal of negative gearing is driving investor activity in Sydney’s west.

“The possible demise of negative gearing has spooked some investors to turnout at Fairfield open homes, while we’ve seen a surge in online enquiries too,” said Chris Hart, Principal, Raine & Horne Fairfield.

The ALP wants to reduce the capital gains tax (CGT) concessions on the sale of investment properties and limit negative gearing to people who invest in new rental properties. The proposed new rules won’t apply to investors who own existing rentals – however as Angus Raine, Executive Chairman, Raine & Horne, warned, current property investors, and owner-occupiers for that matter, will be affected if the changes become law.

Mr Raine added, “Federal Labor's proposed changes to taxation arrangements for investment properties will prove cataclysmic for Australia’s $7 trillion real estate market and the broader Australian economy.

Consequently, Mr Hart said, “The savvy investors in Fairfield have recognised the window on the existing tax benefits could be closing, and they want to get in now.

At the same time, the threats to negative gearing combined with Fairfield’s real estate affordability, decent rentals yield and the massive investment in Western Sydney’s infrastructure in combination are creating the perfect storm for investors.

“Western Sydney real estate is a relatively affordable alternative, which thanks to massive infrastructure improvements such as the second Sydney Airport at Badgerys Creek has an excellent upside for capital growth,” said Mr Hart.

The Fairfield real estate office recently sold a two-bedroom top floor apartment at 15/9-11 Lackey Street Fairfield for a very affordable $345,000.

“The buyers were looking further out in Penrith as they didn’t think they could afford to buy in Fairfield. They were quietly surprised when they paid $345,000 for the apartment,” commented Mr Hart.

“As an investment property, an apartment in an older-style apartment block like this can command a rent of $320 a week. This represents a 4.8% gross return which is appealing to yield-hungry investors.”

Breakout: Busting the political property myths

There are several myths about negative gearing and the removal of this critical tax break that working Australians are using to prepare themselves for a financially secure retirement, says Angus Raine Executive Chairman, Raine & Horne.

1. Existing investor interests are protected – although their negative gearing arrangement will remain, property values across Australia are likely to fall. There will be fewer buyers when the time comes to sell, and fewer buyers mean lower prices. This dire situation will affect owner-occupiers too, whether they are upgrading or downsizing.
2. There will be more construction – although the proposal is intended to direct investor interest towards new properties and hence result in more residential development, investors will realise that when the time comes to sell the property, it will not attract the same benefit of negative gearing for subsequent purchasers. Without the possibility of good capital gain on a property (and the prospect of higher capital gains tax), savvy investors will be forced kicking and screaming towards shares and other volatile asset classes – and not new residential real estate.
3. Affordability for first home buyers will improve – the biggest hurdles for first-time buyers are upfront costs such as stamp duty, a 20% deposit or lender’s mortgage insurance – so removing tax benefits for investors won’t fix these challenges. Moreover, we’ve already had a market correction since the ALP announced these changes four years ago and first home buyers have returned accordingly.
4. Tenants won’t be affected – Experience shows that rents rose sharply in 1985 after the unfortunate yet short-lived demise of negative gearing. Moreover, winding-up negative gearing and the CGT changes will mean fewer investors will enter the market and potentially a higher number of investors exiting the market. Fewer investors will mean fewer rental properties and higher rents.
5. The economic impact of removing benefits for investors will be minimal. Property is currently Australia’s largest industry and if it suffers, so will every Australian. However, it doesn’t end here. With eminent Westpac economist, Bill Evan’s predicting two interest rate cuts in August and November 2019; the Australian economy is in a fragile state. So, with 25% of Australians drawing their livelihoods from the property industry including builders, plumbers, draftspeople, architects, mortgage brokers, bankers, and even property journalists, it would be a dangerous political move to tamper with Australia’s favourite asset class and biggest employer.

For all your sales and property management needs in Fairfield and surrounding suburbs contact Raine & Horne Fairfield on 02 9727 7141.