This could be the most controversial federal budget in recent history, with a focus on negative gearing, capital gains tax (CGT) concessions, and the taxation of trusts. As soon as the Federal Budget was announced, Property “experts” were sent into a spin, with buyers and investors left fumbling to understand how this is going to impact them and the future of their investments.
We are now being bombarded with headlines predicting what these changes could mean for housing affordability, rental prices, property investments, and the long-term prospects of the property market. It seems like everyone has their opinion, and mostly the outlook appears to be pretty dire.
However, we take a fresh perspective.
Why run away from the property market?
This is actually the best time to buy property! Yes, right now.
Whilst vendors are worried about selling their property in the current conditions and the uncertainty whether prices will dip lower due to the budget decisions, this is actually the prime market conditions for buyers to negotiate on a property purchase. This is not the time to be running but the exact time investors should be buying property.
It seems like everyone has an opinion on the market’s outlook, and this gives the false impression that property investment has fundamentally changed overnight, but this just isn’t the case. If you’re a wise property investor and have a solid investment strategy in place, the federal budget announcement should really change…. nothing at all! Importantly, investors need to consider whether successful long-term property investment has ever really depended on negative gearing in the first place, so how is this really going to impact them?
The budget is more than just about property.
The media coverage on the Federal Budget has been focused on housing, negative gearing, and CGT. However, the changes to taxation in the budget will far outreach beyond real estate and the large impact will be to the economy as a whole.
If investors are strategic and focused on growth and positive gearing, they may not be impacted much at all. With the most impacted being the business owners, entrepreneurs, and family trust holders, we fear that this budget will hinder the growth of small businesses and halt entrepreneurship in the future.
What’s even worse, this hit to investment activity could not come at a worse time- when Australia should be focusing on greater productivity, investing in small businesses and increasing housing supply. Whilst the initial intention of these changes might be understandable, to disincentivise investment in property so that first home buyers can “have a fair go” in the property market, the outcome from these changes isn’t as straightforward as the Government might think.
It is a well-known fact that we have a housing shortage crisis. We all know that we need more development and more properties to become available on the market so that supply increases, prices can come down, and first-home buyers can get a foot in the door. But these proposed changes have made it less attractive for some investors, and with fewer investors in the market, the supply of properties available will reduce, which means fewer properties are available to rent, resulting in increasing rental prices.
The Federal Government is aiming to reduce investor demand, but they have completely overlooked that this does not automatically create more housing supply, and the exact opposite may be true as investors are the ones building and investing in new developments. Ironically, these measures that are designed to help first-time home buyers may actually produce the opposite effect, making it harder for buyers.
We Have Seen This Before- The Hawke-Keating Lesson.
Property investors have seen this story before. During the Hawke-Keating era, negative gearing was temporarily abolished before being reinstated after significant negative impacts on the rental markets. We saw the rental pressures intensify in several markets, investor confidence weakened, and the policy ultimately proved difficult to sustain and a complete flop, so the decision was reversed.
This historical precedent is one reason why many market analysts are still scratching their heads about why the Federal Government proposed these reforms. And whether the long-term economic consequences have even been considered.
There is increasing discussion that some elements of these reforms may ultimately be modified, softened, or reversed over time when the consequences emerge, and the resulting market outcomes fail to align with the intentions and expectations of the Budget reforms.
Negative Gearing Was Never the Strategy
Perhaps the most important point often overlooked in the current debate is that negative gearing itself is not an investment strategy. It is only a tax outcome.
Savvy investors recognise there is a significant difference, and for decades, many Australians have been encouraged to purchase properties that lose money each year on the assumption that tax benefits would compensate for those losses. But creating an investment strategy around a taxation outcome is not a long-term strategy that can generate strong cash flow, solid capital growth, and contribute positively to long-term wealth creation.
At Aus Property Professionals, our investment philosophy was never around negative gearing. We don’t design investment strategies based on losing money today in the hope of receiving a tax benefit tomorrow, because this is not the strongest pathway to get to financial flexibility. Only under the right circumstances, a negatively geared property can still become a successful investment, but alone it has never been the basis of an investment strategy.
To be successful at investing, we focus on identifying high-quality assets with strong fundamentals, sustainable demand, and the potential to support long-term wealth creation. Our goal is to locate properties that can stand on their own merits first, and any tax outcomes should be secondary.
Why Positively Geared Strategies Matter More Than Ever
The current budget environment simply reinforces a philosophy we have held for many years.
Our approach has consistently centred on positively geared opportunities, strategic portfolio construction, and long-term wealth creation, with the properties we seek to buy generating strong rental returns and being able to support themselves financially to provide our investors with greater flexibility and reduced exposure to policy changes, such as what we are seeing.
No Changes to Investment Philosophy
While the budget announcements have undoubtedly created uncertainty, experienced investors understand that policy changes are only one factor influencing investment performance. Economic growth, employment, infrastructure investment, population trends, supply constraints and local market dynamics often have a far greater impact on long-term outcomes than any individual tax measure. The latest budget announcements do not change our investment philosophy or our strategies when helping clients build wealth through property. We have always, and will continue to, focus on strategic property acquisition, prioritising long-term wealth creation over short-term tax advantages.
We have always built portfolios based on resilience so our clients can achieve their financial goals through smart property decisions.
It is important to realise that the fundamentals of successful property investing remain exactly the same, which is why our strategies work, and our approach remains unchanged.
Duplexes and New Builds
For those of you who have been contemplating building a duplex, our strategy remains firm on this as well, and now is as good a time as ever to delve into this venture if you have the funds. Or if your borrowing capacity has been affected by the recent changes, then we can get you into a new build, which will still have the negative gearing outcome.
So call us for a strategy chat, so that you have some direction.
