As a company with a clear interest in property, it will surprise no one that LJ Hooker has concerns that negative gearing has become an election platform.
But it’s more telling to hear from those whom will be affected on the ground as to the real ramifications of the proposals.
A poll of 1700 investors with properties managed by LJ Hooker showed 37% of investors earned a combined household income under $100,000, while 67% had a household income of $150,000 or less. The perception that investors are well-to-do is overblown, especially in the major business hubs of Sydney and Melbourne.
The poll also found 31% of investors would sell some or all their portfolio if negative gearing was abolished or restricted. This tells us that property investment is central to an individual’s, couple’s or family’s wealth accumulation, helping to fund major milestones in life. As we’ve seen recently, property is a very solid investment option.
The residential real estate market – including construction, sales and rentals and related services – is one of the Australian economy’s largest sectors both in value and employment. Changing negative gearing legislation will lead to a structural change of the real estate market.
The proposed legislative changes suggest existing properties bought before July 1 2017 would be grandfathered. This would likely create panic purchasing with a rush of investors buying up existing properties in the six-months before implementation. It would create a build-up of demand followed by a drop-off in sales and, as we know, a sudden spike is never good for markets. Such activity hurts everyone from investors to first home buyers and even retirees planning to sell to fund what should be the best years of life.
In addition, we would also expect to see both an initial and long term increase in rents as investors look to cover their costs or sell-off property, reducing the available pool of rental properties. The suggestion this would be offset by a focus on new constructions overlooks the substantial time lag in approvals, funding and the delivery of new developments. Plus, these new developments are more likely to be high density apartment living, suggesting families who would previously have rented a free standing home with a backyard would now no longer be able to do so.
From an employment perspective, abolishing negative gearing for established properties could reduce employment in a number of sectors. The real estate sector would require fewer strata and property managers and as rental properties require regular maintenance and renovations to meet regulations, a fall in demand would impact trades people, handymen and other service providers.
It is important to remember investors play an important role in the evolution and shaping of the Australian property market; they boost stock and provide much needed rental accommodation, with a reasonable portion of stock addressing social housing needs. Therefore, changes to negative gearing arrangements could see a significant demand on both state and federal governments to fund increased public housing requirements.
Negative gearing, asset depreciation, repairs and maintenance have long been allowable tax deductions and a key feature of the Australia taxation system, to support investments and maintenance of assets across all industry sectors. To specifically target housing as an asset class no longer entitled to these deductions makes no sense; especially to justify this on the basis it is singularly contributing to ‘affordability’ issues in the housing market. It is a successive lack of vision and government policy around regionalised employment opportunities, poor infrastructure and development planning delays that has led to this concentration of demand in a small number markets that has led to increases in house prices and questions around affordability.
About LJ Hooker
Established in 1928, LJ Hooker has grown to become Australia’s best-known and most trusted real estate brand.
LJ Hooker features one of the largest residential and commercial sales and property management networks in the industry with more than 8,000 sales professionals, property managers and support team members.
With a franchise network of more than 700 offices across the Asia Pacific including Australia, New Zealand, Japan, Indonesia, Papua New Guinea, India, Vanuatu, Dubai and Hong Kong, LJ Hooker sold more than AUD$19 billion in real estate last year. The company is one of the largest property managers in the region, managing 130,000 properties totaling $75 billion for investors across Australia and New Zealand.
LJ Hooker also provides a full suite of commercial services across Australia and New Zealand including buying, selling and leasing real estate for commercial or investment purposes. Under its LJ Hooker Commercial brand, LJ Hooker has 28 commercial offices supported by 300 commercial experts across the office, retail and industrial sectors.
LJ Hooker is the only real estate agency to offer its own brand of home loans. Established in 2005, LJ Hooker Home Loans is experienced in the non-bank mortgage market with a unique business model of home loan franchisees and loan writers who operate nationally. The LJ Hooker Loan book tops $4.9 billion with more than $1 billion in loans settled annually.
For more information visit ljhooker.com.au
Grant Harrod, CEO – LJ Hooker
Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.