THE BUDGET – a sigh of relief
Property Investors can breathe a sigh of relief!
Based on the magnitude of Joe Hockey’s recent austerity budget, property investors could have been squarely in the firing line. Strategies such as negative gearing had long been talked about by the previous government as an area that could potentially increase government revenues and could be seen as an easy target, but property investors have been spared… for now! The argument that some pundits put forward that negative gearing does little to boost housing supplies, creates an uncompetitive market for home buyers and is a strategy only for the wealthy could mean though that negative gearing may come under further scrutiny at some point in the future.
But are these views a false economy?
Firstly the view that negative gearing is only for the wealthy is a myth. ATO data shows that fewer than 80% of the total individual taxpayers that are claiming a tax deduction for property earn less than $80,000 a year. It appears to be cultural. Middle class Australians see investing in property as a right and a means to supplement retirement and their superannuation, which in turn means a reduced burden on government pensions. There has also been a significant increase in housing approvals over the last 12 months which translates to more supply for both investors and home buyers. Property analysts have always argued that property investors create demand which in turn creates supply and the very important and often overlooked fact that investors provide housing, which ultimately takes pressures off the government in relation to the costly provision of public housing.
According to the bureau of statistics, the property market nationally has performed well over the last 12 months based on the Residential Price Index which measures the average weighted price across capital cities. There has been a 1.7% increase in the March quarter annualised to 11% over the last 12 months with Sydney and Melbourne leading the way with double digit improvements. This has led to talk of Interest Rate rises however the Hockey budget may have an impact, as the government’s cost cutting flows through to household sentiment and the overall economy. This will hopefully, keep rates in check in the short term which is good news for all mortgage holders and property investors.
As to whether the government will look at negative gearing into the future? Well we will have to wait, this strategy has long been ingrained into the Australian investor culture and may be too much of a political time bomb to take away.
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.