If these changes were legislated, investor demand would fall or flatline and result in a cooling in the up until now resilient Sydney and Melbourne markets, SQM Research’s Louis Christopher said.
So far, federal Treasurer Scott Morrison has confirmed the deduction benefits of those who owned secondary properties before budget night would be grandfathered.
To prevent “double dipping” in depreciation, only the first investor of each new investment property can claim these deductions.
The federal government has also confirmed to that subsequent investors of residential investment properties would not be able to claim depreciation to existing plant and equipment even if that equipment had not reached the end of its effective life.
Investors could only claim depreciation on plant and equipment they had bought subsequent to purchase.
It was the implications to future demand from these changes that could soften the market, experts agreed.
Investors who own current properties, particularly newly built ones, would be hard pressed to find future buyers and might have to agree on lower selling prices. Supply of investor-type products like apartments could slow because developers depend on depreciation benefits as a selling point, they said.
With less rental dwellings, rents, which were already rising above the consumer price index, could rise even more, affecting tenants, Mr Christopher added.
“This change will have a major impact on investors, essentially reducing the annual deductions they can claim therefore reducing their cash return each year. This could lead to investors being in a tighter financial position and may discourage future investors from purchasing a second hand residential property,” according to quantity surveyor BMT chief executive Bradley Beer.
“It’s irrelevant if the properties are positive and negatively geared properties. For the second hand market there will be definitely be less demand.”
“The risk areas are those one-year old properties which will have a perceived lower value…this could have a negative impact on housing approvals and investors especially in the short term,” property advisory firm AllenWargent director Pete Wargent said.
“The investors [in housing] with the lowest rental yields will be affected by this change. This is a horrible change fo the industry.”
“The budget speech championed the role of investors in keeping rents down and providing accommodation to millions of Australians. This measure will increase the after-tax cost of holding a residential property and that cost will either be passed on to renters, or the supply of affordable rental properties will drop placing upwards pressure on rents due to demand,” director Mike Mortlock said.
Quantity surveyor Washington Brown has even gone as far as saying the rules would affect off-the-plan investors who cannot depreciate plant and equipment purchased originally by the developer.
“I suspect that the legislation will be worded such that if the plant and equipment was in situ at the time of purchase, you can no longer claim it,” director Tyron Hyde said in his note to clients.