What does the Federal Budget mean for property investment?

What does the Federal Budget mean for property investing?

After the recent announcement of the 2016-17 Federal Budget, property investors will have breathed a sigh of relief with no changes made to capital gains tax or negative gearing functions of the economy. There are negative gearing changes on the way for next year, but for now, property investors will still be able to buy and own real estate for a loss in order to stay away from paying increased taxes on their purchases.

The fact that capital gains tax remains unchanged is also good news (although a cut wouldn't have necessarily been bad news for investors). Had an increase occurred, there would have been a slowdown in the turnover of new properties on the market because of how few investors would want to be selling. That tightening of the property market is not what Australia needs right now, and this unchanged rate is the best thing for both the economy and the many property investors around Australia.

How have you been affected by the Budget?

This Budget focused very heavily on small businesses and innovation with start-ups – that's just the way our economy is heading at present. While there is a decreased focus on property buying and selling in Australia, it's probably a strong time to be looking at the market yourself.

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Capital gains on properties around the country have been seen in large quantities over the past year. The CoreLogic RP Data Pain and Gain Report from December 2015 showed that 98 per cent of houses sold in Sydney last year made a gain for their owners – and with a median house value of $1,031,730, there would have been some pretty significant returns. In fact, for a house in the famous suburb of Manly where 96.9 per cent of all dwellings made a gain, the median increase in return for sellers was an incredible $605,000!

"Negative gearing promotes private investment in the residential property market and stimulates economic activity."

While the capital gains tax stays at the current rate as set out in the Budget, that sort of number has got to be very attractive for anyone looking to add another page to their portfolio. For an added advantage in doing so, a buyer's agent can really set you on the right path and ensure you're buying the right sort of property in the best area. As the saying goes, it's better to buy the worst house in the best street than the best house in the worst street – you can easily make improvements to your own property, but changing the entire street, and potentially the surrounding suburb, is nigh on impossible.

There are no negative gearing changes at present either, which opens the door to savvy investors who can see the value of an extra property over the importance of continual income from a single home.

"Negative gearing promotes private investment in the residential property market, stimulates economic activity and relieves pressure off social housing and ultimately the public purse," said Housing Industry Association Chief Executive of Industry and Policy Graham Wolfe.

"With an ageing workforce and mounting pressure on publicly funded services, retaining negative gearing will support the delivery of a larger stock of rental accommodation, increasing access to shelter, while promoting wealth creation and self-sufficiency in retirement for hundreds of thousands of mum-and-dad investors."

How is the government encouraging the housing market to grow?

Not only has there been the recent Budget announcement, but the latest official cash rate ties in very nicely with the push for further spending by Australians to help with stabilising the economy.

Real estate agencies from all over the country have been encouraged by the cash rate slash to the record-low 1.75 per cent, down 25 basis points from the previous record of 2 per cent, according to the Australian Financial Review. With a lower cash rate, there is a point toward being in a low interest rate environment, which is going to be great news for anyone looking at taking out a home loan to get into the market.

When interest rates are high, people don't want to get tied down to an expensive mortgage, so will instead be looking at rental properties in the meantime. This is good for vacancy rates, as they shoot down, although when the interest rates then drop, as they are promising to do now, more people move out of rentals to get into their own patch of real estate. Investors shouldn't be discouraged, however, because there is still going to be a need for houses and apartments for sale so these buyers can enter the market. Everyone wins in a low interest rate environment!

Whatever your current position as a buyer, there is likely to be an area in the market you're unfamiliar with. That's something a buyer's agent from Cohen Handler will be able to help with, as our teams in Sydney, Melbourne and Queensland have years of experience dealing with both investors and owner-occupiers. Get in touch today – even the Budget is telling you to buy!

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