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Real estate sales would fall by more than 20 per cent in the first full year following the scrapping of negative gearing, according to a new report.
Released yesterday, the report – prepared by SQM Research – also warned of a “very high risk” that, based on Labor’s policy, investors purchasing new property may experience losses on a resale in the first three years of a property’s life.
“The issue is that any secondary buyer will demand some type of discount given the buyer would not be entitled to receive negative gearing tax concessions on the property. And subsequently, such a buyer may demand a discount to offset the lack of concession,” the report explained.
SQM argued that developers could also put a premium on such properties, given that they will be in higher demand than existing properties.
Real Estate Institute of Australia president Neville Sanders said the research shows the consequences of Labor’s proposal would be far worse than initially expected.
“The analysis covers prices, rents, sales turnover and state revenues from stamp duties and the modelling suggests that the consequences are more dire than many have suggested,” Mr Sanders said.
LJ Hooker CEO Grant Harrod said the research clearly shows that prices on a national basis could be as much as 16 per cent lower than otherwise over the three years from 2018 to 2020.
“For some areas, such as Sydney, the drop could be 20 per cent. This is a far cry from the 2 per cent we have been told by other researchers,” Mr Harrod said.
“SQM points out that investors purchasing new property, as Labor hopes to achieve, may experience losses on a resale in the first three years of the property’s life. For owners that have bought houses on low deposits and the banks that have funded the mortgage this is particularly worrying,” he said.
Ray White director Dan White said the research acknowledges and validates the position the industry has taken on Labor's policy – that it will fail to do any of the things it purports to do and in fact will hurt all parts of the community.
"We view this policy as irresponsible, particularly given Labor's failure to model the effects of the policy themselves. The debate on negative gearing and housing affordability is one as an industry we're wont to have, but in short, the Labor plan is destructive,” Mr White said.
Property is already a heavily taxed asset class. According to research from CoreLogic, while residential property investors wrote $3.719 billion off their taxable income, it is estimated that they paid capital gains tax on $51.2 billion of profits made from dwelling resales over the 2015 calendar year and contributed significantly to the $45.0 billion in property-related tax revenue collected by state and local governments.
“What’s more, property is already one of the more heavily taxed asset classes,” Raine & Horne executive chairman Angus Raine said.
Mr Raine pointed to data from the ABS which shows that over the 2014-15 financial year, state and local governments collected $45.203 billion worth of taxes from property (this includes residential and non-residential).
“This $45.203 billion in tax revenue accounted for a majority (50.6 per cent) of all tax revenue to the state and local governments,” he said.
“With government deficits spiralling out of control, it seems counterproductive to take the knife to negatively geared residential property investments.”
Mr Raine added that negative gearing is not a wealth creation tool used by the wealthy and that Australians earning a taxable income of $60,001 to $70,000 are the most likely to claim a net rental loss and use the strategy.
“This proves once again that the vast majority of property investors are middle-income Australians, simply trying to build some wealth for their retirements,” he said.
[Related: Agents must take a position on negative gearing]
