Until now, any homeowner was able to deduct a net loss from a residential investment property from their overall income, thereby reducing their yearly tax bill.
From July 2027, that will only apply to new build homes, superannuation funds and those who purchased their properties prior to budget night.
A spokesperson for Chalmers has now confirmed to the Australian Financial Review (AFR) that those property purchases also include owner-occupiers.
This means that Australians who currently own their home bought before budget night could later purchase another property and convert their current home into a negatively geared investment.
KPMG chief economist Brendan Rynne told the AFR the grandfathering arrangements would mean existing owners of both investment properties and owner-occupied homes would be more likely to hold on to their properties so they could retain the option to negatively gear.
“What that’s going to mean is that that housing turnover is probably going to be a bit less than what we’ve seen in history,” Rynne said.
It’s thought that defining investment property status in legislation would have been prohibitively complex, so the loophole was likely deemed a necessary part of simplifying the reforms.
The negative gearing exemptions may seem friendly. One property expert warns it’s a’ trap’
This could inspire new investors to buy into sprawling apartment developments or house-and-land packages on the outskirts of major cities – but these types of properties historically “underperform” as investments.
Property investment guru and Your Empire chief executive Chris Gray said the federal government’s new build exemption may “screw investors” who buy solely based on their freedom to apply negative gearing.
“It’s basic economics. If something’s in short supply and lots of people want it, the price goes up. Where you’ve got lots of supply, it won’t.”
First-time Australian investors who weren’t lucky enough to buy before 7.30pm on budget night now have two choices: buy a newly-built home for the negative gearing benefit, or lose the tax break and buy an existing property.
Gray, who has 30 years of experience buying and selling property, said seasoned investors will know to give new builds a wide berth.
He would still choose the option of buying a second-hand home in a high demand area, despite the chance it won’t be positively geared for at least a decade.
Some inexperienced buyers, however, could still be fooled by something called “manufactured capital growth”.
And it could take years before the reality of their bad investment sinks in.
“Developers might sell 20 at a time and slowly release them. They sell the first lot at say $500,000 and the next one at $525,000 and then $550,000,” Gray added.
“Everyone thinks that it’s rising, but it’s not.
“It’s not until you get someone selling it to another person in maybe five years’ time that you actually realise, potentially, the property hasn’t grown in value at all.”
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