Sufficient affordable housing to support a free moving, flexible workforce is vital to support our innovative economy.  We need our workforce experts to be able to contribute where the economy and business needs them. Property investment needs to provide sufficient rental property to support their flexibility.  Capital growth rates over the last years have put the price of many properties in Sydney and Melbourne into the unaffordable category for most.  New home owners are being forced further out, or into smaller properties such as apartments.  Are regulators considering more intervention to shape the housing market?

 

Regulation is being considered to slow the rate of property investment - is this wise?  Regulatory changes in 2015 included APRA intervention, a review of negative gearing, considerations for foreign ownership and the cessation of NRAS.  

 

APRA, the regulatory authority that oversees banks, credit unions and building societies, sought to stabilise the housing market with changes to the proportion of lending to the investment sector. Owner occupier lending is now dominant over investment lending once again. The question is will this reduce the pool of rental properties over time and as a result cause an increase in rents?

 

Negative gearing has been under review this year.  This is a firmly established taxation benefit for all businesses to provide a taxation break for any operating losses.  Given the size of our current budget deficit it may be expedient to have this benefit reviewed, especially for for foreign ownership of property.  Providing a tax break for those that do not pay tax in Australia is generous.

 

Interestingly depreciation has not been reviewed in the same way. This misunderstood benefit allows a claim that is clawed back later.  Capital gains tax is applied to the purchase price minus any depreciation benefits.  Will the amount of depreciation allowed be reduced?

Governments have an interest in shaping the property investment market either directly through interventions such as APRA and taxation benefits; or indirectly through first home owner and affordable housing benefits. 

 

In the UK it is affordable housing that in London translates into sufficient affordable rental property to house those working in the city.  In China 300 million people are forecast to move from the country to the cities in the next decade.  Affordable housing is key for country workers to provide services in the cities.  In Indonesia the country population is moving to the cities in about the same proportions as China.  They need affordable housing close enough to employment centres to support their growing economy.  How will they deliver these services?

 

What is likely to shape property investment in Australia in 2016?  

 

Affordable housing continues to be a huge issue, in 2015 we saw the end of the NRAS scheme.  The Government will no longer provide a direct subsidy for private individuals to provide property to the rental market.  How do they intend to maintain sufficient property in this sector?

 

Fractional property ownership platforms continue to grow their market share.  The transfer of shares, on their platforms, are not subject to stamp duty.  Will this impact state and territory revenues?  Current discussion is already strong for an abolition of stamp duty and a broad based land tax for all property owners.  Is this the final straw?

 

As capital growth rates slow those that are caught by spruikers and property sharks may find they have paid too much, and may not be able to settle due to APRA changes.  This window increases the focus on property investment advice regulation: considerations of regulation of the claims that can be made, and the suitably qualified advisors that can make these claims.

 

What we can be sure of is that Governments always needs more revenue, and all rental housing can not be provided by the Government.  Property investors have a vital role in the market place.  Property investors wanting to optimise their results need to have an eye on Government policy to ensure they continue to thrive.

 

Best wishes of the Season to all of you and may your property investments be very successful.

 

Rosemary Johnston co founded the Property Investment Association of Australia, and has been a board member since 2002. She now is a property investment advisor at Forrester Cohen Professional Services.