The Australian property market faces a complex range of challenges. Britain has voted to leave the European Union, the outcome of the Federal election is uncertain, negative gearing policy may change, and foreign investors face increased stamp duty charges.
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While Britain’s EU exit will take two years, the impacts of its decision have reverberated throughout financial markets globally.
Experts have warned that Brexit could provide a timely warning about the potential of sudden policy changes, such as those proposed for negative gearing, to have wide ranging effects.
What does Brexit mean for Australia generally?
Ultimately, Australia looks more attractive relative to Europe. While the exit was not completely unexpected, it has increased uncertainty in the European Union, and in Britain.
Australia attracts significant global capital, particularly for commercial property, and in many cases competes for this capital for locations within Europe. Australia is considered stable, has economic growth and low sovereign risk. It has a reputation as a safe haven and this remains so.
Will Brexit affect the Australian property market?
It is generally considered that Brexit will influence Australia’s residential sector.
London is one of the main destinations for Asian commercial property buyers. Uncertainty may lead them to look at other destinations such as Australia, which is likely to be seen as increasingly safe, particularly compared to Europe’s near-term outlook.
Sydney and Melbourne will be the most likely beneficiaries of such foreign investment.
Given the impacts on the Australian Stock Exchange, Australian investors may turn to what they know and trust – bricks and mortar.
However, at the time of writing, it is impossible to ascertain whether Australia’s long-established negative gearing and capital gains tax (CGT) policies are about to change. If, as proposed by Labor, negative gearing is restricted to newly constructed property and CGT is doubled, it is thought that property investors will see real estate investment as less attractive.
Labor proposes to grandfather existing investments from its policy change, however, The Greens are opposed to the grandfather component of its policy.
The real estate industry is united in its concerns that limiting negative gearing to new property could have multiple, unintended consequences – putting Australia’s economic recovery at risk while it transitions from mining resources investment to other key drivers, such as housing investment.
What are you most concerned about with Brexit? Let us know in the comments section below.