NGs impact on prices and your exit strategy

How do you think NG reform (as proposed by labour) will impact prices of existing properties?
How will it change your exit strategies?
How will it impact your future property investment decisions?

Let's not get bogdown on merits and demerits of NG or labours reform perse, let's just concentrate on if it happens as we know with grandfathering and limited to new built, how do you think will it impact on your future investment decisions and your exit strategies.

 

1. Investors will desert the property market in droves.
2. All property prices will crash.
3. Rents will skyrocket as the number of rental properties skydive.
4. Our economy will be tipped into recession.
4. There will be “blood in the streets”. People will lose their homes, their jobs, banks will go belly-up, ...
5. ...

We are B+H investors. Our exit strategy won’t change. Our grandkids will still inherit our property portfolio when we go.

 

Negative gearing (for new investment in established homes) will still be available against income other than wages / salary.

Negative gearing isn't critical to my position, but if I was keen to use it I would either:

• Wait until one of my properties is positively geared and negatively gear the next purchase against the rental income
  
• Buy some dividend paying shares and negatively gear the next purchase against the dividend income

Labor's policy has loopholes you drive a truck through.

 

If a person does nothing , nothing will happen --If a person does something,something will happen..The worst that happens is you start with nothing and I know a few end up with nothing which is what the investors starts with..
But as you seem worried about Labor ,just ask yourself one question as this may happen that the cost of an established house in a straight line is less then the cost for a new build then you will have problems from every angle value wise and the explosive consequences within "Jensen's Inequality"..

 

The NG changes won't change my strategy at all and my own guess will be they won't have a huge effect on the market either considering all the other market factors at play.

 

My exit strategy is over 10-15 years away so regardless of whatever the short term politics are... I don’t have a clue what will happen that far down the track..., so I am not changing anything.... just continue to hold for the long term and see what pans out

 

Focusing on your questions:
1 - In the current housing environment, the impacts will be severe. Their is already a lot of fear in the market and could you think about the headlines running for months on end. Almost no-one will be willing to buy established and that includes PPOR even though it has no effect on them. People that need to sell will then ultimately need to sell low, that will ripple on.
I have called 15% from the start of credit crunch, I will call another 15% if this happens.

2 - It simply means you have a lot less flexibility to adjust your portfolio. A lemon with NG grandfathered May still be better than a better performing property OR a new apartment. But the bigger issue is who on earth is going to buy a lemon without NG.

3 - For me Zero because I don’t like the idea of holding property but if I did it would be something I built anyway.

 

???
If you're investor and decide to sell your property then it will be sold either to first home buyer or another investor. There are no other options. In both cases it won't change supply & demand rental balance

The effect of removal of NG is growth of rental yield, but it can grow simply by price reduction

 

Rents will not skyrocket.
Those who already own property have it grandfathered so no need to try and recoup loss costs.

Investors buying new will have NG.

House prices which will fall under fear will likely open the door to FHB who won’t need to rent anymore.

On the contrary I think as time goes by that rents could take a further hit.

 

Short term reaction to NG and CGT will be happening at a time when many other independent negative headwinds are at play.

I agree with you assessment of 15% more on top of whats already in play due to credit crunch and Io2PI rollover, just that to me that in itself was 20/25% fall from peak by 2020 so if NG acts on top of it we are talking about a panic territory.


That's short term.

Long term it will have a negative impact on price recovery, very slow and painful recovery,

 

Curious @TheSackedWiggle & @albanga :
- Assuming your correct in the 30% peak to trough fall

I assume your reading the information on hand to make these predictions. Adding a couple more bits of information, what do you think will happen if:

• Lending policies materially loosened via something like an assessment rate change that boosts borrowing power across the board by 15-20%?
• RBA drops cash rate to 0.50% and borrower rates start with a 2.XX%.
• The economy continues to perform in light of this monetary stimulus, growth hits 3.5%+ next year, unemployment contained.

How will that impact your assessment of the 'bottom' if the above play out as a response function to falling prices?

 

My belief is they will do very little.
People are simply controlled by the media and they are already fearful. I haven’t read an article in the past 6 months that wouldn’t put fear into the uneducated about the property market.

So how do you think the media will react to NG changes in a declining market? I can picture the headlines already...

Say they do drop rates as a result. I’m not sure it will have the desired result INSTANTLY. If anything it might spark more initial fear.
“What are they doing that for so quickly? does it mean prices are going to drop further because of NG?” A lot of People are not going to run out and purchase because the RBA dangles a carrot in front of them. People will be cautious.
I have 4 friends who have all been house hunting the past 12 months that have now all pulled out . Each of them is “waiting to see what happens”.

The changes you suggested will help with a much faster recovery but I fear if they are not done prior to stabilize the market then you will be adding gasoline to an already raging fire.

So I maintain 15% on current market sentiment and plus 10-15% if NG changes. Based purely on peoples psyche than any other factor.

 

Interesting - that would counter economic theorists (rate cuts, strong employment, strong population growth, boost to lending ---> massive price falls?). But 'animal spirits' tied to uncertainty in tax policy, often leads to outcomes that are unpredictable.

I don't actually think the regulators would go that strong anyway - it was just a hypothetical to gauge how strong you think negative sentiment is. That response is extreme, but so is a 30% price drop. Playing out my market level thoughts to this possible response:

IMO if rates start with a 2 & the assessment rate drops, then we will hit a new peak in prices that we've never seen before (recover all losses and then a bit more). Not only would price falls stop happening, price rises would be strong. We had a 70% rise last time they did something like this (dropped rates dramatically & effective borrowing power transmission changes). Housing falls slowly (illiquid) and rises sharply.

Why? Broad based interest rate changes with an effective credit increase transmission mechanism (borrowing power) are far more direct impacts than tax policy, IO, niche investor changes.

 

I see the theory but will FHB be so keen to buy an assets falling in value. Buying may go from being unaffordable to too risky

 

Will they grandfather the 50% CGT discount? or from x date will it be reduced to 25% for all properties?

 

They could, question is would they?
Why did APRA did what it did over last 3/4 years?

If credit is back to what it was and some more then all bets are off.

 

If prices trend towards a 30% fall as suggested?

I'm reasonably certain they'd take massive action before it got anywhere near that level of decline. What that action exactly is can go down a few different paths and will be 'staggered'. If it got anywhere near 30% though, I'm with UBS analysis, thats deep recession territory and it'd be unprecedented action. I think they had their base response at '0% rates and our own QE'.

The current 'headwinds' and 'risks' will quickly turn into 'positives and plus' points if rates fell dramatically, credit opened up, economy kept steaming away & prices were already 10-15% lower than peaks.

 

Yep 30% of fall from peak for Syd/Melb.

What do you think will be the trigger point in terms of % fall from peak for RBA to stop making noise and doing something, 20% fall from peak for syd/melb?