One big question mark facing the property market after the federal budget has been whether investors will find new builds attractive, given their exemption from the negative gearing changes. The data suggests that might be exactly what’s happening.
In case you missed it, the new budget changes allow new-build investors to retain the old capital gains tax and negative gearing rules. The hope is that this will encourage housing development, something widely agreed to be essential for improving supply and affordability.
Data shared with the Australian Financial Review by property fund manager Oliver Hume shows the proportion of new-build sales to investors has jumped above 40% in Victoria. In contrast, first home buyers’ share of sales fell from 66.7% in April to 54.9% in June.
The same fund manager is seeing a similar trend in South Australia, while other major developers, like Simonds, say they are seeing a 76% jump in investor enquiries since mid-May.
The impact on the market includes a 14% drop in home loan applications nationally in June and falling house prices in major cities. Sydney’s median house price fell 1.5% ($23,500) to $1.56 million from May to the end of June, according to Cotality. Melbourne’s median similarly dropped 1.3% ($12,000) to $948,000. Canberra also recorded a fall, down 0.7% to $1.035 million. The other capitals have yet to record a drop in prices.
The Switch to Commercial Property
With residential property now less attractive to investors, some are moving towards commercial property, where the tax changes do not apply and yields are higher.
While residential yields often sit around 2 to 3%, commercial yields can range from 5.5% to 7%. That is far more attractive without negative gearing to offset the losses. Commercial property owners can also pass on some or most of a property’s operating costs to tenants through the lease structure. So council rates, building insurance, and strata levies may end up covered by the tenant. However, this all depends on the state and property type, so be sure to talk to your adviser before making a decision.
There’s a third option for SMSF investors. The incoming restrictions on residential SMSF lending don’t apply to commercial property, so buying business premises through a fund remains on the table.
This is all far more complicated than residential lending, so it pays to have an experienced broker in your corner. If this is you, get in touch with It’s Simple today for a no-commitment, no-jargon conversation about your financial position and plans for the future.
This article contains general information only and does not take into account your personal objectives, financial situation or needs. It is not financial or credit advice. Please seek advice tailored to your circumstances before making any decisions.