An SQM Research study into the effect of Labor’s proposed negative gearing policy has predicted property prices will fall in the period 2020 to 2022 as a result of the measure.
The research forecast property prices will fall due to a rapid decline in investor demand.
It noted the decrease in property values may not occur immediately if there is an interest rate reduction prior to the policy being implemented, if the there is an easing in the lending practices of the major banks and if there are grandfathered opportunities.
In addition, the study forecast rents would rise from anywhere between 7 per cent and 12 per cent over the years 2020 to 2022 and nominated the cities of Perth and Brisbane as those that would experience the greatest increases.
Further, the research house warned investors looking to benefit from Labor’s policy by acquiring new properties from off-the-plan developments ran the risk of the property in question being valued at less than the purchase price, especially if the asset is sold within the first three years of ownership.
“In short, if Labor’s negative gearing policy is legislated in its current form, we expect a rise in rental yields, which will occur through a combination of additional falling dwelling prices and, eventually, a rise in rents,” SQM managing director Louis Christopher said.
“Housing construction, already in a slump, would likely fall further due to the lack of investor demand. This would set up a shortage of housing come later 2020, based on current strong population growth rates.
“Such a tax change during a housing downturn is in our opinion a risky move for the economy and so we encourage discussion of perhaps a phase-in period for such legislation that would reduce the economic shock that this tax change could create.
“Once again, we strongly encourage Labor to consider some of the investor issues, particularly surrounding the distortion their policy may create on pricing of off-the-plan developments and the likely losses investors in those properties would face come resale time to those who won’t have the tax concession.”