Investment timing pre election: thoughts?

I have been wondering if we will see a significant uptick in investor activity before the upcoming federal election with the major threat of reduction in capital gains discounts and negative gearing.

I mean, if you buy now, you lock in tax savings and discounts for the life of the ownership of that property, if you buy in June, you will probably lose them. I know folk in Sydney and Melbourne are legitimately concerned about further price falls but many markets are chugging along nicely or appear to have bottomed already. Is the fear actually so all consuming for people that they won't take action? Are people (rightly or wrongly) convinced there will be nationwide price falls or nationwide recession?

I have been asked about it a few times so I wrote this blog post which combines my thoughts about the Royal Commission (lots written on the forum already) plus the election rule changes and ideas for investors who are sitting on their hands thinking about when to buy.

I would love any comments or replies to the blog post here SMOKE, MIRRORS and the ROYAL COMMISSION… What you need to know following the recent R.C. Report.

A snippet of the article contained here:

"In May 2019 we have a federal election, after which time the grandfathered negative gearing and capital gains tax benefits will be impossible to get. Assuming Labour win, which most analysts are convinced they will.

So, this means the clock is now ticking…and its 11:59 if you want those tax advantages.

On the ground investors now have 9-11 weeks (depending on the exact date of the election) to get a property under contract if they wish to protect their tax rebates for years to come before the nation votes. After that the assistance of negative gearing and a reduced capital gains taxation rate will be gone.

Gone for good. Gone.

BUT it is important not to rush out or buy rubbish properties. Highrise towers, units in our cities are clearly on the nose and do NOT offer any investment returns for investors in this market. Please please please, the off the plan towers are the one part of the market that could have more pain ahead, so be very careful.


We have always said PUT PROFIT before TAX. That hasn’t changed.

What to do? "

The rest of the article outlines a set of principles to help avoid mistakes in 2019 in particular:

1: Be boring...
2: Follow the money...
3: Watch Retirees...
4: See quality...
5 Negiate hard...

etc etc

I hope this helps somebody and if you have a reply to this let's chat, this is property chat after all.

(P.S. @Simon Hampel please advise if I have complied with the spirit of rule change #20 with this post including the context of adding that link above and if not I will delete this post)

 

Great post, Matt!

You raise some very valid points!

To me, these can only really be speculated upom once the effective date for NG and (any) CGT-discount policies are enacted. I find it unlikely that, upon winning the election on May 11th or May 18th, that Labor will be able to EFFECT their policy for July 1st 2019-commencing. Even though this policy is at the forefront of the entire Labor election campaign, their ability to pass through this legislation to effect for Jul 1st is questionable. It needs to go through senate and also needs to find a place amongst other legislative items already in the queue.

Maybe itll go through quick, if not, it may not effect until July 1st 2020. And if that happens, there would be more time for Investors to jump back into the market. If not, then the Investors who buy in the next few months will probably have an edge.

 

Even if labor win (likely) and even if they implement the taxation changes in full (I’m not convinced since property declines and RC) the chances of it passing legislation this year I would say is minimal. It’s likely it will be introduced 2020 and yes I do believe when announced we will see investor activity to lock in benefits.

 

I’ll focus on what I can control, this it all short term noise and won’t dictate my strategy. No doubt it will have a short term effect due to the sheep and emotional mindset of most. I’m a buy and hold investor so won’t be effected by CGs. With negative gearing, to me that’s just a moment in time. The discount you may get after it’s implemented could be more than the few years of negative benefits you now receive anyway. Will look back in 15 years and wonder why we made such a a big deal, or maybe we won’t, I wouldn’t know. Everything happens slow in property so you’ll always have time to plan.

 

Yeah, I guess my thinking is that the speculation part is based on the likelihood that they could ram it through faster (I have read articles about the possibility of 2 budgets being handed down in 2019, and if I was Bill Shorten I would want it done quicker to avoid precisely the wrinkle that would occur if they announce it with any real time for investors to change their buying decisions.

Fair points...But what if they have their own budget, announce it in the budget (say in June for eg) and the effective date is the date of announcement?

I totally agree on focussing on what we know and what we can control. The possible discount is also a factor for speculation (all of this is future gazing), I also believe in profit first and tax a distant second. I guess where I disagree is that neg gearing is a actually big deal for some people, that sometimes things (like rules) can change fast.

I confess I am not super strong with politics, as such not fully across the nuances of exactly how fast it could be brought into effect, and the legislative options before a potential Labour govt. to introduce it fast vs the technical/legal limits delaying it impacting investors... might read some on that I guess.

 

Hhmmm 56% auction clearance rate in Sydney today, 54% in Melbourne. Thats a second week in a row of an increasing clearance rate. Maybe there will be a buyer run-up pre-election?

 

I posted in another thread, but the only thing that seems to be increasing is the amount of “unreported” and “withdrawn” auctions.

Domain is reporting 56% preliminary for syd. But around 40% are unreported! Re agents are just not reporting unsuccessful auctions.

437 auctions, 285 reported. 197 sold. 66 “withdrawn”.

Sydney Real Estate Auction Results for 16th February 2019

197 sold out of 500.

From Shane Oliver:
Prelim Domain auction clearances: Syd 56% (=final ~52%,last wk 53%). Mel 54% (=final ~47%, last wk 50%). Still weak & Feb usually sees a seasonal bounce versus Dec of +10% in Syd & +6% in Mel (av last 8 yrs). Sales vols for Feb so far are -58%yoy in Syd & -73%yoy in Mel