The 2019 Federal Budget offers few new measures to directly benefit property investors. But by leaving negative gearing and the capital gains tax deduction untouched, it represents undeniably good news for those hoping to generate wealth through property.
For middle Australians deciding how to vote at the upcoming federal election, Treasurer Josh Frydenberg’s 2019 Federal Budget contained lots of reasons to smile. Along with a cash rebate for low- to middle-income earners there was the promise of a hefty $19.5 billion in tax cuts, with those on middle incomes among the chief beneficiaries.
Yet for property investors, the pickings were considerably slimmer.
Despite falling house prices across most of the country, there were no new direct measures aimed at encouraging investment. Rather than intervening through budgetary measures, the government seems content to let current market forces play out.
However, investors should have no doubts about it. This is a good news Budget for developers and investors, particularly when compared with the alternative vision being offered by the federal opposition.
Why? Firstly, despite the lack of direct measures, the Budget contains a number of initiatives that stand to indirectly benefit property investors and developers should the government be re-elected.
Chief among these is a commitment to deliver $100 billion in infrastructure spending over the coming decade. Representing a big boost on the $75 billion over 10 years announced in last year’s Budget, the money would go towards easing congestion in capital cities, funding commuter carparks and enhancing transport links to regional centres.
New funding for a new rail link between Melbourne and Geelong would supplement existing rail link projects between Sydney and Wollongong, and Brisbane and the Sunshine Coast and Gold Coast.
Ultimately, such development should have positive flow-on effects for developers and investors, as the markets in regional areas spring to life, stimulating the building and property markets.
The Budget also reaffirmed the government’s pre-existing commitment to providing $1.7 billion in federal funding towards supporting state affordable housing services. Most of this money will go towards the National Housing and Homelessness Agreement, which is working to increase the supply of new homes across the country.
NSW will receive $482.2 million, Victoria $406 million and Queensland $319.8 million, with the rest divided among the smaller states and territories. Again, this has the potential to benefit developers and investors as new housing stock is created and surplus government land is earmarked for development.
But undoubtedly the most significant aspect of this year’s Budget is what it doesn’t do.
Shadow treasurer Chris Bowen last night affirmed Labor’s commitment to changing the rules around negative gearing and the capital gains tax deduction. Under Labor, negative gearing – the practice of deducting losses made on an investment property from an individual’s tax return – would be abolished for most purchases.
The only exemption would be newly built properties and those properties currently being negatively geared. Similarly, Labor would cut the current 50% discount on capital gains tax, applicable on properties owned for more than a year, to just 25%. Both measures would reduce the attractiveness of investing in property.
Labor’s approach is aimed at improving overall housing affordability and generating additional income. However, with housing prices in most capital cities falling, many analysts fear it would further cool an already falling market.
The government alluded to the state of the market in the Budget papers, remarking, “Uncertainty about the outlook for the housing market, in particular the extent to which housing prices fall, poses a downside risk to the forecasts for both dwelling investment and consumption.”
However, investors should bear in mind that whichever party wins the upcoming election, there will still be opportunities to build wealth. Many analysts now feel that the steepest of the price falls in the eastern capitals are over, with the decline slowing.
And while the Reserve Bank this week kept the official cash rate on hold at 1.5%, the market is expecting a 0.25% cut by September – a move that could stimulate the property sector. Analysts interpreted RBA governor Philip Lowe’s comments in his post-decision statement as slightly “dovish”, suggesting the board was warming to the idea of a rate cut.
While the cooler market has scared some investors away, it’s a good time to keep in mind the words of American investment guru Warren Buffett, who quipped that wise investors should be, “fearful when others are greedy and greedy when others are fearful”. The current lower housing prices may offer a golden opportunity for those prepared to risk the waters.