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Issue Date: Mon 20-May-2019
Article Source: https://www.afr.com/real-estate/residential/investors-claim-they-will-quit-property-i...

Labor's negative gearing plan could deter investors

Sudath Arumapperuma says he will switch from investing in property to shares if a future Labor government scraps negative gearing for existing dwellings.

Sudath, an academic with three investment properties, claims losing generous tax concessions would no longer make it worth the effort, risk and expense of renting out properties.

Sudath Arumapperuma would no longer buy property but focus on shares if Labor's changes come into effect. Wayne Taylor

“You never hear property investors talking about the downside of owning property,” the finance and economics lecturer says. “But if you cannot find a good tenant, it is a big headache.”

Sudath and his accountant wife Deepthika live in a four-bedroom home with a study and home theatre in South Morang, about 24 kilometres north east of Melbourne’s central business district.

They have an investment house nearby in South Morang, another in Paynesville (a seaside holiday resort about 293 kilometres east of Melbourne and Apollo Bay (just undeer 200 kilometres south-west of Melbourne).

“We bought our property in Paynesville after holidaying there,” says Sudath. “The owner wanted to sell and it was very cheap.”

A future Labor government claims it will be able to boost the supply of new property by retaining negative gearing for new investment properties only. This claim is hotly disputed by property developers and investors.

All existing negative-geared investment properties purchased before January 1 are grandfathered.

CGT changes

As for capital gains tax under Labor, the 50 per cent deduction for investors who sell an asset after holding it for a minimum 12 months will be halved to 25 per cent.

Investors are nervous about proposed tax changes.  afr

The CGT discount which applies to superannuation funds will not be affected, even if the super fund is started after January 1. The 50 per cent active asset reduction which applies to small business will also be exempt.

Sudath says even though he and his wife have purchased existing properties, which will not be affected by the Labor policy, their attitude to additional property investing will change. “We do not like it,” he says. “We would not buy any more and would seriously consider the share market.”

The policies were first announced three years ago and Labor has come under renewed pressure in recent months to dump them amid a slowing housing market.

David Melon and his wife Glenys are self-funded retirees and live in the outer Melbourne suburb of Rowville, about 27 kilometres south east of the CBD.

The couple had three investment properties but sold one. They use the rent to supplement their income.

David had a self-managed super fund “but got rid of it” because of the high annual auditing and management expenses.

A future Labor government is planning to scrap limited recourse borrowing for SMSFs, a reform that has been recommended by independent reviews because of concerns about the high risks of leveraging super savings.

David says he has always encouraged his two adult sons to invest in property to build capital and income.

“I do not think they would buy any future properties," adds Glenys. "Any tightening of negative gearing will put them off," she says.

"If the government wants to encourage rental properties, then they need to provide tax incentives for landlords because of the high cost of buying them – despite recent falls – and the hassle of management."

 



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