As indicated in our earlier comments we will be keeping a watch on policy developments prior to the federal election.
We note that Labor proposes to scrap negative gearing on established properties made after a yet to be advised date. Existing investments will be grandfathered and negative gearing on newly built properties will be permitted.
In addition Labor intends to increase the rate of capital gains tax, currently at 50% of the net gain to 75% of the net gain, applying to investment properties owned for more than 12 months.
These events will realise a material impact on the internal rate of return on an investment property. In real terms this may result in a reduction in the order of 25% on the investment return.
This could well result in a significant reduction in demand for investment properties, which in turn could have a negative impact on property price growth as well.
Obviously property owners would want to pass on some of holding costs to tenants so it would therefore not be unreasonable to expect that rents would also rise.
If you are considering the purchase of an investment property you may find it wise to do so prior to the federal election so as to have such investment grandfathered.
It is difficult to predict specific outcomes subsequent to the implementation of these intended changes without seeing the actual legislation however in the event of an intended purchase it may also be wise to explore the use of Trusts or Companies to facilitate such a purchase.