Implications for the housing market and housing affordability from the 2017 Federal Budget
Source: CoreLogic published on May 10, 2017 in National Market
TWEAKS TO NEGATIVE GEARING POLICY
- Investors can no longer claim travel expenses as part of their investment expenses.
- Additionally, investors can only claim deductions related to plant and equipment expenses that they have incurred directly rather than claiming expenses incurred by previous owners.
- Removing travel to an investment property as a claimable expense will impact those investors with properties in regional areas or in locations that are distant from where the investor lives. Regional areas may be disadvantaged by this new policy, however the impact on investment demand is likely to be minimal. This is likely a response to a perception that some investors are claiming travel expenses that may be more related to personal usage rather than legitimate expenses related to their investment.
- The changes to plant and equipment deductions could be more material, as it effects an investor’s ability to depreciate things such as appliances & utilities (oven/dishwasher/hot water system etc) if these items were purchased by the previous owner. There could be the potential that this policy encourages investors to renovate established homes rather than purchase recently built product where they won’t be able to realise the depreciation benefits of recently installed appliances. The 2014-15 taxation statistics show that $3.013 billion in capital works deductions were claimed. We also know that investors overwhelmingly prefer to buy established rather than new stock so this could have a significant impact on the attractiveness of second-hand investment properties and may contribute to an overall slowing in investor demand. From a rental market perspective it may provide better outcomes with owners more prepared to invest in upgrading their properties for the depreciation benefits.