Article:

Have the government changes in the real estate sector impacted investors?

23 November 2017

Hung Tran , Partner, Business Services |

The changes to depreciation claims and travel costs that were announced in the Federal Budget this year were designed to slow down the investor market and potentially make housing in Australia more affordable for first home buyers. However, many commentators are arguing that they might just do the opposite, with mum-and-dad investors possibly losing value on their investment property. What's the real impact of these government changes?

Limiting depreciation claims

Depreciation allows property investors to claim a tax reduction on the depreciating value of plant and equipment over time. Previously this was open to all taxpayers, but now depreciation claims are now only available to certain taxpayers. Mum-and-dad investor’s however are now only limited to claim depreciation on assets they have paid for themselves. This means investors will not be able to claim a tax deduction where they've bought the property which includes appliances such as a dishwasher and air conditioning already installed in the property.  The government has also scrapped the deduction investors could claim for travel expenses to go and inspect their property or collect rent.

These changes were aimed at slowing down the investor market in Australia and combat rising property values. Australians invest heavily in negatively geared properties, which the government believes is causing Australia's inflated property values. To combat this, the government has chosen to limit the non-cash benefits that investments get. This relates to properties purchase from Budget night, 9 May 2017.

Will these changes have the desired effect?

The obvious impact of this is that second-hand properties will be a lot less attractive to investors. This is likely to lead to reduced property values in the short term, and a potential increase in homeowners over renters.

However, it won't be long until the market re-adjusts (as it always does) and we'll simply begin valuing residential property in a different way.  As such, the impact of these changes will disappear in a few years.

The main issue is whether the government's changes may have a negative impact on Australia's previously struggling real estate markets, such as Perth. Western Australia was just starting to pick up, but may shrink again if investing becomes less attractive. For Sydney, Melbourne and the rest of Australia, including Brisbane, the rental market may slow down slightly, but investors will find these changes aren't going to impact them as much as expected.

I welcome your examples or comments as to how the government changes are impacting you. Feel free to connect with me or email hung.tran@bdo.com.au if you have any questions or need any assistance.