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The winners and losers from negative gearing changes

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First home buyers could be in for a treat as falling house prices coupled with a potential negative gearing change bring prices to lows not seen in years.

But the forecast is less sunny for some of Australia’s property investors and homeowners, realestate.com.au chief economist, Nerida Conisbee told Yahoo Finance.

Don’t know what the reforms mean? We explain it here.

The ALP proposes limiting negative gearing benefits to investments in new properties, in a bid to encourage investors to invest in new properties and increase the overall number of properties available to prospective buyers, also taking the sting out of Australia’s “severely expensive” property markets.

“The immediate impact [of Labor implementing its negative gearing policy] will be prices will drop and rents will rise,” Conisbee said.

That’s because the current negative gearing policy allows investors - typically individual or “mum and dad” investors - to set rents at a cheaper price than they’re outgoing mortgage repayments. The removal of the policy may mean investors hike rates.

But investors may also exit the market, as they did following successive regulatory measures designed to curb excessive investor activity.

Good news for first home buyers

“I think if you're a first home buyer, it's good news. It does make it easier for you to invest,” Conisbee said.

“When prices have dropped, just recently, those home buyers have come back into the market, so they love the price drop and they don't like prices increasing very fast and that makes sense.”

Buyers, naturally, prefer stable or declining prices, so falling property values are also a positive.

Then there’s the fact that increasing rental rates will make renting unattractive.

“It also makes renting unattractive for them. If rents are going up and it's not so cheap to rent anymore, it becomes even more attractive for people to buy their own home.

“Overwhelmingly the policy change is great news for first home buyers.”

Investors

For investors, the policy will have the worst sting if they’re looking to purchase properties after the policy has come into place, as newly built dwellings are generally less attractive to investors.

Investors with existing homes will have their negative gearing arrangements grandfathered, Conisbee added, noting that the policy “doesn’t really impact” them.

Home owners

The difference between pain and relative stability is how long ago the property was purchased. Given the housing decline in recent years, homeowners who bought recently will likely feel a bit of stress, Conisbee said.

But if homeowners bought 10 years ago or more, any lost value would be offset by historic gains.

And, she added, these losses and gains won’t necessarily impact them until they decide to buy or sell.

Builders and developers

The real winners are builders and developers, Conisbee said.

Company-owned build-to-rent housing will be the sector that increases a lot, she said, pointing to the size of the US market and the number of companies that are enthusiastic about build-to-rent properties in Australia.

Australia heads to the polls on Saturday 18 May.

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