There is a widespread belief among Australian landlords that any changes to make the CGT discount less generous will be grandfathered in, and only apply to future purchases. If that holds true, there will be a big potential payoff for buying sooner rather than later.
Sydney landlord Rohit Gehlot has 13 properties in his portfolio and is considering adding more before any changed are introduced, he told Yahoo Finance.
He is also the Director of buyers agency InvestorAid and says some clients are bringing purchases forward “before everyone else rushes in”.
“If this gets announced, I am very, very confident there is going to be a massive mad rush get in before the first of July,” Gehlot said.
“People just want to grab an asset, because these assets would still be eligible as per current capital gain discount.”
He told Yahoo Finance some landlords weren’t waiting for budget night for confirmation of any changes.
“Some smart ones are already bringing their purchases forward,” he said. “As we speak, we are buying for a few clients because of this news. They are really wanting to get active before everyone else rushes.”
Gehlot admits the changing behaviour rests on the big assumption that recently purchased properties won’t be impacted by any reforms, but he is confident that is “most likely to be the case” because otherwise, he said, it would be “unfair” for investors who bought homes years ago based on the expectation of a 50 per cent discount.
However analysis from the parliamentary budget office shows excluding all existing investments would raise very little revenue for the government in the near term. It has also reportedly looked at applying a less generous discount to already held properties.
Nonetheless, in a video to social media this month, Gehlot told viewers grandfathered reform in the budget “could completely change the property market in the next 60 days”.
Another Sydney buyers agent, Emmanuel Michael, admits he has seen a similar sentiment with investors fixated on potential CGT changes.
“It’s actually been pretty hectic. We’re seeing a genuine rush from investors trying to secure something now because most believe that if CGT discount changes do happen, they’ll be grandfathered,” he told Yahoo Finance.
Buyers agents says a landlord stampede could hit the market. (Source: Supplied/Facebook)
“A lot of our clients plan to hold property long term anyway, so the thinking is if they lock something in under the current rules, they’re protected. Because of that people are moving much faster on decisions than we normally see.”
Both Sydney agents said global turmoil and rising interest rates are an afterthought for buyers.
“What’s interesting is what people are choosing to worry about. I haven’t had a single client seriously question the war in the Middle East or even the possibility of interest rates rising again. But potential CGT changes? That’s what’s driving urgency,” Michael said.
But it is a mixed bag. Former real estate agent and Melbourne buyers agent Dion Marsden says he has “not necessarily” seen any change in the eagerness of property investors.
“While there are a number of factors that influence housing markets, there is evidence that the concessions provided by the capital gains tax discount, in combination with negative gearing, have skewed the ownership of housing away from owner-occupiers and towards investors,” it said.
“The benefits of the capital gains tax discount are also unequally distributed, with implications for income and wealth inequality and intergenerational inequality.”
The terms of the inquiry included examining the contribution of the CGT discount to inequality in Australia, particularly in relation to housing, and its potential drag on productivity by overly encouraging investment into unproductive assets like housing.
