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A growing population and election promises

CBRE News

23 April 2019

By 2030, it’s predicted that Australia’s population will hit 30 million, with almost two thirds of this growth attributed to overseas migration. A further 38% of the population growth is from natural increase with birth rates overtaking death rates.

 

Australians are seeking a sustainable self-sufficient future with a healthy environment and a robust democracy. In a project done for the Australian Academy of Science, it was also found that Australians fear a future where the day-to-day stability has been eroded and there are depleted resources including limited access to healthcare and education.

 

While the future is uncertain, there are some things that are clear. Other than the population growth, the median age will also increase as will the population over the age of 65. Agricultural trade is projected to drop, and energy consumption will rise while pressure on coastal cities will increase to reflect the population growth.

 

But what does this growth mean for Australia and how will each political Party promises support this growth? With the Election called for May 2019, here’s how Australia will fare in the future.

 

Labor vs. Coalition

In terms of Labor’s promises, the negative gearing restriction, which currently applies to all residential investment property, both new and existing, will only apply to those who invest in newly constructed housing. While those who have purchased an investment property prior to 1 January 2020 will remain unscathed, established properties purchased after the cut-off date will not be eligible for negative gearing (the ability for investors to deduct rental losses from their personal income). While it’s difficult to fully determine what will happen if the policy is brought into effect, it is likely to have a significant impact, as the value of an investment property could fall due to a reduced buyer pool.  

 

Labor’s other election standpoint refers to capital gains tax. At present, the discount for assets that are held for longer than 12 months stands at 50%. Under a Labor government, this will be reduced to 25%. Again, properties purchased prior to 1 January 2020 will not be effected. What will the effect be? It may encourage people to sell properties as the combination of the negative gearing and capital gains changes may make investing in property less attractive. This, in turn, may lead to a reduction in prices. However, on the flip side, it can also go the other way, with investors deciding that the properties are worth holding on to, especially those purchased before the new tax cuts come into effect. This could reduce the number of investment properties available, thus pushing up prices.  

 

Ultimately, according to Labor, these changes will help support housing construction, encourage better affordability for first homebuyers and result in stable long-term tenancies to give renters greater peace of mind. The proposed changes are also designed to encourage new supply, which will be the exclusive domain for negative gearing. It’s believed this will benefit residential developers in the long run.

 

Apart from removing the capital gains trust discount for foreign residents who sell their main residence in Australia, the Coalition government has made no proposed changes to negative gearing or capital gains tax. However, there are three main areas where the Liberal plan may affect property. We all know that development succeeds when there are good transport options, particularly public transport. The Liberals are promising a $100 billion investment including road upgrades to bust congestion and better public transport options, for example, METRONET in Perth and the fast rail between Geelong and Melbourne.

 

Additionally, the Coalition claims it will help with the cost of living and deliver a stronger economy. In turn, this will create more jobs, help maintain budget surplus and deliver tax relief for families and small businesses. The economic outlook and overall performance of the economy can have a major impact on the property market. Simply speaking, strong economic growth and employment means more Australians can afford property.

 

Finally, with a lot of the pressure being felt on our fringe cities, the hope is the by supporting regional Australia, property purchases in our regional centres will increase. Assisting the regional centres, according to the current Liberal Government will not only secure our economic future, but will also encourage Australians to move to rural centres and perhaps, we’ll see a major property shift.

 

With the election still a couple of months away, it’s yet to be clear what will actually occur, especially as more election policies will be announced in due course. Either way, the property market is set for a bit of a shake up.

 

 

 

David Milton

Managing Director


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