With the current leadership debarkle spread across the news, many may be left wondering, if there is a change in leadership, will it affect the rules that govern my portfolio? Ultimately, what effect will a change in Prime Minister have on my residential property investment? The damage the coalition have inflicted on themselves makes it unlikely they will win the next election.
Will the rules change, and will this affect my portfolio?
Within a broad perspective, it’s fair to say that with a change in government, there will be some rule changes. What will change, one cannot say for sure. If Labour takes control of the decision-making process, it could mean the end of building a residential property portfolio in a SMSF (Self Managed Super Fund) Secondly , Labour have made it known that they want to change the existing rules of building a residential property portfolio using negative gearing.
Who will be affected by changes to Negative Gearing?
Rather than rich ‘Fat Cats’ the majority of negatively geared properties are owned by the average working Australian.
Let’s not forget what happened in the mid 1980’s
Let us go back in history, where Labour cancelled negative gearing once before. In 1985, under pressure from the left wing, Paul Keating banned future negative gearing of residential properties. For those that already had negatively geared properties at the time, it had…
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…no effect. But thereafter, when the rules came in to play, investor’s started leaving the market. Demand then, for rental accommodation, soon exceeded supply. This of course, pushed rents up. In the first 12 months, rents in Sydney increased by 60%.
What happens when demand for rent exceeds supply?
The government had under-estimated the amount of housing supplied by the private sector and had to find a solution to encourage investors back into the housing market, without negative gearing. What did Keating do? He allowed investors to depreciate the cost of a building by a 4% flat rate over 25yrs. But this only worked to a small degree. Investors still wanted negative gearing.
Did Keating relent?
Yes, within two years, negative gearing was re-introduced and the depreciation of building costs remained as an incentive to get investors back into the market but was reduced from 4% to 2.5% where it remains to this day.
So, if the rules change, how will it affect my portfolio?
It will not affect your current portfolio. If the rules change, it would be like a referee changing the rules after the game is over. So, if you are thinking of buying investment properties in a traditional manner or via a SMSF, do not procrastinate, act now!
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At the helm of Steve Taylor & Partners, Steve has been delivering expert advice and product knowledge to clients for over 30 years. We provide individuals, couples and families with the right strategies to create wealth and change their lives with solid bricks and mortar.
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