Today’s big announcement is getting missed

So labor has put a date to its cap gains and negative gearing changes (end of this year). But I believe more importantly they have also flagged a reduction in the withholding tax rate for institutional investors in built-to-rent housing.

This is a very big deal. While Australia has a very mature and sophisticated listed reit market, well ahead of Europe/japan and second only to the US, one area it is way behind is in the multi-family (apartments) sector.

Unlike many developed countries, almost all rental stock in Australia is owned and provided by individuals. Mereton rents out a large portfolio of apartments, but that’s about it.

Why? Because of the tax system. Individual investors in Australia have an advantage in that they can take advantage of negative gearing, meaning they required a lower gross rental yield than institutional investors would accept. Consider the net cap rates on CBD office of say 5-6%. Good luck finding a decent residential asset let alone a portfolio that would deliver that after expenses and without leverage.

While the govt has been making big announcements about creating a build to rent sector, and pushing the developers to get involved, apart from a few token announcements the response by the operators has been that it is simply not economic.

Labor’s tax policies will completely flip this around the other way by lowering the withholding tax rate for institutions in managed investment vehicles from 30% to 15%, putting it in line with other rental property asset classes, and through the NG/CGT changes that will affect individuals.

Expect to see a much higher proportion of rental property in Australia owned and provided by institutions (eg super funds) and a lot less by individual punters in the future.

 

Wouldn’t bet on that one. Even if they win, this was a change that had to happen eventually. Politically, whatever happens to NG, if they wanted to develop a larger build to rent sector, and this (withholding tax changes) was a necessity for that.

 

I have voted labor before ...this time I won't...their hair brain policies will probably cost them the election...it is not only NG..but also Franking Credits...these policies will alienate a lot of their voter base...their policies are more likely to appeal to the Millenials...whoever is is the campaign strategist is an absolute Arse.

 

Labour is looking to add 200 billion in taxes. Don't we pay enough tax in this country already. I can't understand how anyone would vote for these tax increases.

 

Who? Hipster Millennials who think that the only people getting slogged in those extra taxes will be everyone older than them.

Wait till the build-to-rent apartments go up, owned and maintained by huge conglomerates whose sole purpose is to make money - I suspect they will be worse run than housing commission flats. Most of the individual Mum and Dad investors will be run out of the market, leaving far fewer options for renters than they have currently.

 

Nothing will get better for fhb..that is just their own tunnel vision.

 

I wonder if all the former forum members shouting about negative gearing are pleased with themselves?

If people think that renting from an individual is difficult now, try renting from an institution.

Personally, it doesn't worry me too much because if the policy is implemented the way they are saying now then it will advantage me in some ways.

Overall though I see it as a detrimental policy.

 

Know if many forum members not investing for a profit?

In terms of quality, certainly won’t be really high spec finishes for the most part but their will be an imperative to maintain occupancy, which will drive some competitive capex. I reckon it just means there are less extremes in terms of quality and service from the landlord. Plenty of dodgy private landlords at the moment too I would imagine.

Don’t expect a corporate to miss an opportunity to raise the rent though.

The quality of a lot of the stock offshore in the US isn’t too bad. Generally have pools, gyms, security etc.

And bear in mind, while the phrase ‘huge conglomerate’ often gets thrown around in a negative context, the huge conglomerate in this context is just as likely to be you, through your industry super fund.

 

Exactly. I use "Huge conglomerate" as a neutral term to describe a large fund. These Funds will be directed to make profit for their shareholders or unit holders. They can drive up rents whenever they feel like it because the individual residents cant negotiate like they can with an individual landlord. Spend as little as possible on maintenance because they have no motivation to "be nice". How much do you think they will care about residents' safety given they can afford to pay (bribe) their way out of public liability if anything goes wrong.

 

Think that’s a bit harsh. Not sure it all works out that badly.

Landlord always keen to up rents if possible too, but in both situations the ability to do so will be determined by market forces.

Same with maintenance. Compare your local small scale convenience shopping center to your bearishly Westfield. Which is maintained better?

Ditto for random suburban office buildings vs cbd office. Corporates have the professionalism to know when maintenance needs to be done, and the balance sheet to do it when it does. Not all of course, but most major operators.

Also consider that regulations on landlords are only increasing, in terms of safety, communication, rents etc. it may get to the point when only companies can keep up. Consider what has happened in the childcare sector where small, home based operators are being regulated out of the industry.

 

Bearishly - nearest ...

 

There was talk of reducing the capital gains discount from 50% to 25%. Does anybody know if this is proposed for all investors or only new investors ?

 

Who do you think pays for shop fit outs and long leases with built in rent rises. It is certainly no charity like resi is.

 

Major issue as I see it is land tax. It's so aggressive and progressive that holding a building full if apartments is difficult. Land tax would kill all profit

 

I have never voted Labor but I cannot fault them on these policies (less distortion on existing dwellings market and more incentive to add supply).

 

my understanding of Labors proposed changes to negative gearing, is ... to make the application of tax laws with property investing, consistent with say investing in ASX shares. In that any losses, can only be deducted from similar investment style gains. Key word - consistency. (Happy to be corrected on this). Seems fair to me.
Probably push my $$ into ASX shares as well.
Appreciate the above the above posts from Deck - less distortion in the market.
No, i am not a Labor troll.

 

Based on my experience in SFBay, I'd rather rent from corporation/residential REIT than private party any day. I had zero issues renting from corporations in various parts of US. It was a lot better than my experience in Sydney. For REIT, property is a business and not a side hustle/hobby like it is for most private parties.

 

Thank you!

In many cases, the companies who act as your landlord will be the same as the ones you would have bought an apartment off. These are pros. They have massive financial motivations to keep your accommodation well maintained, legal, safe and occupied.

As a former tenant of mereton, I found them absolutely fine, if a bit more willing to squeeze the rent than I liked.

I’d take that over an overbearing, underfunded, unresponsive or unprofessional private landlord any day.

 

Couldn't agree more.

It would certainly be better for renters overall if professional organisations took over from the mum and dad investor types.

 

Tell me more! I have no first hand experience at renting, ever, hence my negativity. I do know how well my own tenants have it. I expected these large companies would operate like monopolies and socialist government accommodation providers. Take a drive along the freeway from the Prague airport into the city and get a westerner's view of several miles of eastern bloc suburbia. The view from Changi airport into Singapore city is a bit more appealing. San Fran and Vancouver high rises are very attractive, I just dont imagine they would be affordable to your average resident who cant afford the rents in Sydney and Melbourne cities today. We were in North America ten years ago and I took lots of notice of the residential accommodation to compare with Australia. I hear they are far more expensive today than back then. Can you post an example of what a pensioner or single worker could potentially live in for $200-$300au per week.