With five tightly contested bi-elections held across the country in July, while talk should have focussed on issues in the electorate, much of the conversation was around how the results could affect the upcoming Federal election. While Prime Minister Turnbull is not talking an early election, for property investors it’s never too early to consider the possible outcomes of a Federal election, how they might impact your investments and therefore, what strategic changes you should be considering to your portfolio.

With Labor retaining all their seats in the bi-elections, probably the most significant issue is that Labor is talking of abolishing negative gearing if they win Government at the next election, while the Coalition has said that is definitely not on their agenda.

So if Bill Shorten, or whoever is Labor leader at next election, does get the keys to The Lodge, will you effectively lose the keys to your investment properties? Or at least A key to success in property investing.

Negative gearing has long been the foundation of property investing and a vehicle which has enabled many people to enter the market and reap significant benefits.

If negative gearing is abolished:

The impact of stripping out negative gearing will be felt in so many ways, by many people across multiple sectors of the economy and the community.

• It will have a direct effect on the state’s economy, both immediately and through the longer term. Such a change would cause property sales to plummet which then flows through to slashing the income that the government earns from stamp duty. In 2015 $6bn was paid to the NSW government in stamp duty which drove NSW into surplus and paid for many of the infrastructure projects and services through our community.
• New property sales will stall, which will directly impact the construction industry and jobs.
• Super is not enough! 66% of Aussies already retire below the poverty line. By imposing this legislation it will stop hard working individuals trying to set themselves up to be self-funded retirees. Flowing on to putting more pressure on the government to support even more seniors on the pension. Given that we have an aging population, how will Australia cope in the long term?

What you should do NOW and IF/WHEN it happens:

If you strongly believe Labor will win the next Federal Election, then my advice is:-

If you paid too much tax last year and have been contemplating getting an investment property then now is the time to act. If it does eventuate, Labor’s proposed policy will be grandfathered. This means any existing property investments you have, you will still be able to claim negative gearing. The change will only effect existing properties you buy post the change. It is not planned that it will impact brand new properties.

That is, under the ALP’s policy, existing investment properties would not be affected, with new investments only eligible for negative gearing if they are made to invest in new-build homes.

The positive spin

Of course, there’s a positive side – if it does happen, it will be highly likely that the many investors that rely on negative gearing to realise returns, will sell properties and move investments to other vehicles. This scenario could flood the market with well-priced properties for others to snap up and add to their portfolio.

That’s my take, and if you would like a personalised review of your portfolio in the light of this or any other issue, please give me a call 0418 522 422.