The federal budget’s changes to negative gearing have triggered a noticeable uptick in demand for new properties, but established homes in quality locations remain a solid long-term option.
Developer and Managing Director of Aus Property Professionals, Lloyd Edge said the budget changes, which preserve full negative gearing benefits for new builds while limiting them for established properties, have shifted conversations with investors over the past few weeks.
“There’s not so much talk about construction prices now because there’s more of a talk about if you buy new, you get the full negative gearing benefits,” Mr Edge said.
“I’ve seen a lot of demand for people who wanted to change their strategy to buy new properties that fit that category.”
The definition of “new” is also broader than many realise, Mr Edge said.
Properties that have been lived in for less than twelve months by an owner-occupier still qualify as new builds for tax purposes, opening up options beyond off-the-plan purchases.
He said on the surface, it appears that developers are going to benefit from the budget announcement.
But cautioned against a knee-jerk change in strategy for average investors.
“I still maintain that older properties in good locations, over time, are still going to be where the growth is,” he said.
“A lot of the new-build properties often are in new estates, so they’re going to be on the edge of town, the outer suburbs.
“While there’s going to be a spike in demand for them, they’re still not in areas that have the best infrastructure.”
The changes also create opportunities for less scrupulous operators, Edge warned. Property spruikers pushing house-and-land packages with hidden building commissions are likely to ramp up activity.
Mr Edge also flagged a looming bottleneck in the development pipeline.
While demand for construction is set to rise, planning approval processes – particularly in Victoria – remain unchanged.
“The councils haven’t made the red tape easier to get the approvals through,” he said.
“So it’s going to be more DA’s, but they’re going to take longer to get approved.”
For investors weighing their options, Mr Edge’s advice is to focus on fundamentals rather than chasing tax breaks.
“You certainly shouldn’t need to be relying on negative gearing to get a good asset,” he said.
“If you are relying on the tax breaks, then maybe you’re not buying the right asset for yourself anyway.”