Fewer investors would buy property under the Australian Labor Party (ALP)'s proposed revision to negative gearing rules and taxation arrangement, according to a survey commissioned by the Property Council of Australia.
Labor plans to abolish negative gearing on investments in established property and to increase the capital gains tax on both new and established housing investments.
Just 24% of potential investors said they would buy a newly-built investment property in the next five years under the proposed changes. Similarly, only 27% of current property investors would consider buying a newly-built property under Labor's policies.
Property Council of Australia chief executive Ken Morrison said the results of the survey indicate that the changes could have a significant impact on the property investment decisions made by Australians.
"These findings directly challenge the ALP’s key assumption that its property tax package will stimulate new housing supply and construction. They show that investors will be less likely to invest in newly-constructed housing under the ALP’s tax changes, not more likely," he said.
Should this be the case, there will be fewer houses that people can rent, leading to a surge in rental prices in the medium term.
"We are concerned that the proposed changes would drive away investors, which will affect the supply of new and established property to the rental market – which is essential for one-third of Australian households," Morrison said.
The proposed delivery changes also dampened investors' attitude towards established properties. Only 16% potential investors and 21% current ones said they would buy an established property if changes to tax arrangement and negative gearing were to be implemented.
However, it is interesting to note that while 60% of respondents had heard of the proposed changes, only 19% claimed that they had a good understanding of Labor's policies.
The investor's knowledge of proposed changes to capital gains tax was also very low — three in five investors were not aware that the rate would be hiked from 50% to 75% of the personal income tax rate for future property investments.
When asked what they would do if the proposed changes had already been in place, 46% of current investors said they would have increased the rent charged to tenants, while 36% would have paid less for the property. Roughly 33% of investors said they would have rather invested in shares instead of property.
“These findings highlight the dangers of making big policy changes at this uncertain time in the property cycle. The ALP policy was first announced a few years ago when Australia’s residential property market was in a very different state,” Morrison said.