Labor plans to limit negative gearing to newly constructed dwellings while “grandfathering” arrangements for people already negatively gearing existing dwellings. In other words if you currently negatively gear an investment property you could continue to do so.
Depending on which property boffin you believe, this potential policy change will either prompt investors to sell off negatively geared properties, flooding the market and forcing prices down.
Or investors will want to take advantage of the grandfathering arrangements and hold on to their existing negatively geared properties for as long as possible, preventing the market from being flooded.
In one camp, Aussie Home Loans founder John Symond has warned of a potential recession and price drops of 10% to 20% if Labor’s plans go ahead.
While the former head of Macquarie Group’s property division Bill Moss went a step further to predict 30% price plummets.
Meanwhile Reserve Bank officials believe Labor’s policy would only cause a mass sell-off of negatively geared properties if the changes weren’t grandfathered.
So, who is right? Only time and voters will tell. Needless to say this is one election that property investors will watch closely.