WILL IT WORK?

LABOR’S NEGATIVE GEARING POLICY

LABOR’S proposed negative gearing reforms have driven an ideological wedge through the Cairns property market, between sceptical industry veterans and first homebuyers looking for a foot in the door.

The package, tipped to reel in $32 billion in extra revenue over a decade when coupled with changes to capital gains tax, will be one of the chief battlegrounds of the upcoming federal election.

Kenfrost general manager Adam Gowlett argued the changes would do more harm than good, even though negative gearing would still apply to new builds – his employer’s specialty.

“Kenfrost do not believe that Labor’s policy will increase new housing stock. We believe it may actually reduce new construction,” he said.

“People investing have a choice to invest in a range of products – shares, bonds, super and even property.

“The Labor policy to restrict negative gearing to only new property means that if an investor does choose to invest in a new home, when they come to sell that property, it can no longer be sold to another investor and used as a rental property.

“This will reduce the market for the original owner and mean there is no chance of the tenant staying in place.”

Labor’s scheme contains a grandfathering clause so land- lords who already claim the benefits will be unaffected on their current portfolios.

LJ Hooker Edge Hill principal Ross Moller doubted the reforms would achieve the desired goals for somewhere like Cairns, where the cost of building was still far more expensive than buying second-hand.

“If they stop negative gearing on second-hand housing, it’s still not going to encourage new ones,” he said.

“That means there will be less around for rent, which will drive up rental prices as well.”

The Cairns rental vacancy rate was just 1.4 per cent in September, earning it a “tight” designation from the REIQ.

“Rentals are going gangbusters. It’s chaotic at the moment,” Mr Moller said.

Not everybody is convinced the reforms are a bad idea.

Hillross financial planner Mark De Gregorio said time would tell but the market could be opened up to first home buyers now locked out by investors able to offset rental shortfalls with negative gearing.

“The younger accumulators are concerned, because obviously negative gearing is that extra cream on the investment – it gives you that bit more of a tax refund,” he said.

“The issue has been in the capital cities where they haven’t had a lot of increase in rental yield but very big increases in capital growth.

“They use negative gearing to help them get significant tax refunds to help pay for the interest on that property.”

Mr De Gregorio said Labor’s aim was to push those investors out of the market.

“In my opinion, that’s ultimately a good thing,” he said.

“Investors shouldn’t be buying an asset based on tax deductions or tax refunds.

“They should be buying on the quality of the asset.”