With the Federal Election looming – a Liberal or Labor win will mean different things for property investors and future investments depending on your individual circumstances – so here are some answers to some of the most common questions I am always asked around election time.
In putting this together for you, I have realised there are quite a few reasons why property will be even more interested in the coming weeks, much more interesting than seeing the same political games played by both parties who are trying to market themselves to you – to get you to vote – for them!
Is this Slowdown in Property a Good Time to Buy?
It’s a well-known fact that property buying slows each election, usually for about 6-8 weeks. Add this to the reduction in prices, and we haven’t seen a better time in the past four years to buy quality property. The reasons for this include:
- People fear political change and stop investing. Everyone wants a feeling of safety and a sense of wellbeing to open their wallets. That’s why people looking to buy or sell property wait for stability and want to know that their prime minister is not going to announce any new or crazy changes
- Too much noise. Once the election event has passed, the political advertisements stop, things return to normal and people are less preoccupied with politics so they are now free to focus more on themselves and investing.
With a short-term slowdown of property in May, we believe this will open opportunity for property investors who are ready to invest.
What tax benefits are changing if Labor wins?
There is a high probability of the Labor government being voted in, which would mean a new policy to be introduced around negative gearing and capital gains which directly impacts your property investing decisions. It may still get watered down yet the proposal of reducing CGT discounts and limiting negative gearing benefits from 1/1/2020 will mean investors won’t be leaping into property as quick as they used to.
What should I do if I am thinking about buying property?
Buying property with a Contract of Sale dated prior to 1/1/2020 will lock in negative gearing benefits which can add considerable return to your investment, otherwise if you wait until after 1/1/2020, and if you wish to use negative gearing to improve cashflow, you will now have to wait on soaking up those tax losses from your property until you create a positive return from property in the future (exceptions apply to new builds).
The bottom line is that in the future you will have to invest very wisely or improve your property in some way to maximise casfhlow. For instance, granny flats or other useful renovations can be key to maximising rental returns.
For the past eight years we have been singing the praise of granny flats and the additional returns they bring, we have been preparing our clients to focus on neutral or positive returns from quality property in major cities.
Will my property be affected?
In some suburbs there are many investment properties that are mainly negatively geared, and as they sell to new owners in the future, they may see a longer term impact by being less attractive as an investment. This could impact suburb prices, and it may be wise to look at owner occupied areas with less turnover for a more stable property price.
What is important is that you hold the right property to last the distance. Is there development potential and upside for you, what is the zoning, what is the cashflow?
And with each new property investing deal in the future – the cashflow performance and requirements are going to be even more important. If you have a house that is zoned correctly, consider introducing a granny flat and a second source of income. You can create a considerably higher return on a residential property investment.
We do warn investors if your property is not performing well now, chances are it will be performing worse as people will turn elsewhere.
So Should I Invest In Property Prior To 2020 To Lock In Negative Gearing Benefits?
It all depends on your individual position and goals. If your retirement strategy is to invest in property over the next 5 years, then yes, the time is now!
I would bring forward the implementation of that and try and invest prior to 1/1/20. It can add a small percentage of return to your investing, which over time will add a significant difference. Always remember though that investing in the right property for the long term is more important than these negative gearing benefits.
And if you are one of the lucky ones who doesn’t need to borrow funds for your investment in property, and negative gearing doesn’t affect your wellbeing, then consider the heading of this article that says – Who Gives A…