Political parties of all persuasion should understand some fundamental truths about the property market.
There are many investors who are terrified of shares and wary of superannuation because of the continual rule changes. They use borrowing for residential property as their means of saving for retirement. This is a double win for Australia — it provides an ongoing supply of rental properties, reducing pressure on rents, while enabling hundreds of thousands of people to become self-funded retirees, with no expectation of help from the government.
Given these facts about the housing market, what does the future hold?
It’s anybody’s guess but we do know the election will be in May and the result may be a narrow win for Labor. If this happens, expect months of negotiating with the minority parties to get these changes passed. This will create uncertainty, which may well mean that potential homebuyers sit on their hands, waiting to see what laws will be changed and how.
Labor has promised that their capital gains tax increases will affect only assets acquired after a specific date in the future. Once that date is announced, expect a flurry of buying in both property and shares, as everybody who can jumps in before the tax rules change.
If this happens, it is highly likely to be followed by a significant slump in buying activity after the change date because everybody who could buy would have already bought.
But it’s a paradox. An asset bought before the change will be worth more than one bought after the change, for tax purposes.
However, if you buy or own a house — new or established — before the change it may well be worth less than it would be after the change because there will be less people who want to buy it.
The big question now is whether such radical property changes should be contemplated at a time when the market is in a slump, with strong indications that it may get worse.
https://www.theage.com.au/money/investing/why-labor-s-housing-policy-is-self-defeating-fraught-with-peril-20190228-p510u8.html
