Andrew Bell Market Update 2026 | Issue 12
Hi, Andrew Bell here.
Now, we’ve got a biggie today, I seriously mean that because we’re talking about a very important topic.
I mentioned in my last report that I’ve waited for the dust to settle in relation to the changes announced in the federal budget on May 12th in relation to the real estate market and of course, other industries as well. So please, you know, allow enough time if you can. We’re probably going to be at about 20 minutes, but it’s a really important topic. It affects any property that you’re thinking about buying, affects properties that you might own and so on. So really important and particularly if you rent.
Now of course, I keep getting asked how the market is responding to these changes. Well to date, whilst there is some uncertainty for the real estate buyers in the marketplace, it’s important to remember that owner occupiers make up the greatest proportion of residential real estate activity. For home buyers negative gearing and capital gains tax changes have no direct consequences, because they simply don’t apply to the principal place of residence, and so it’s business as usual for them. And I’ll touch more on that in upcoming ENews’.
A great test was our most recent auction. We sold six of the seven properties submitted to auction, representing one of the highest success rates in the entire country. Pretty good sign of the market.
So, as promised this week, we’re not going to talk about things in general we’re going to talk about the effects of the changes of negative gearing, not capital gains tax. I’ll talk about that in the next report. Now, negative gearing may not directly affect you, but it does affect the real estate market, which ultimately does affect all of us.
Let’s be clear about what negative gearing is.
It’s simply a process whereby expenses that exceed income from an investment property can be claimed against a taxpayers other taxable income. Fundamentally, it’s a cash flow management tool that enables ordinary Australian’s who don’t have sizeable incomes to enter the real estate investment market.
Higher wealth investors might be inconvenienced by the changes, but it doesn’t block them from their investment purchases.
I should also point out here that the changes to negative gearing do not apply to commercial property. Buyers of commercial property can continue to utilize negative gearing. Likewise buyers of brand new development stock can also continue to utilize negative gearing. The only changes, or the changes relate only to the resale residential market.
Now, approximately 72% of all residential property investors in Australia own just one investment property just one, while the further 17% own two. That means close to 90% of property investors are ordinary mums and dads Australians. They are teachers, nurses, tradespeople, office workers, small business owners. They’re not high wealth Australians at all.
So the government announced on budget night, May 12th 26, that all properties owned prior to 7:30 p.m. that evening would retain their existing negative gearing arrangements. They’re grandfathered.
The changes only relate to purchases of resale residential properties after 7:30 p.m. on the 12th of May. So for those who have already negative geared properties, nothing. Nothing changes. Nothing to worry about.
The government’s rationale for these changes was that this would allow 75,000 first home buyers to enter the real estate market, who would otherwise have been priced out by the mum and dad investors who had bought properties. Now, that was a noble intention, perhaps, but unlikely to happen with major consequences that apparently have not been thought out by the government, which I’m going to detail now.
Now we know the fundamental issue in the Australian property market today is simply supply. You may have noticed that just a week or so ago, on the 2nd of June, Australia’s population passed 28 million, a rise of 1 million people in just two years. Obviously, they all need somewhere to live and a very high proportion of those go into to the rental market. The government’s much heralded drive for the construction of 1.2 million homes over five years is already 77,000 builds behind schedule after only 18 months into the scheme. So there’s an increasing demand for more rental accommodation, not less.
Now one of the biggest challenges for these 75,000 first home buyers is that they cannot afford to save during the affordability crisis sweeping the nation. Now with higher interest rates, their ability to borrow has also been substantially reduced. And of course, the affordability also applies to them being able to meet loan repayments. And so they’re going to get knocked out.
However, if they’re wiping of negative gearing, did encourage a larger number of first home buyers into the market, the very market they would be entering is the sub $1 million price bracket, which is where many rental properties currently exist. Those purchasers would remove properties from the rental pool at the very time we already have a huge demand pressure for more rental accommodation.
The federal government argues that removing negative gearing from the resale market will drive investors into new builds. I would argue that this will not happen in any great volume, simply because these mum and dad investors cannot afford the prices of new build stock, which is considerably higher than the types of properties that they can afford to buy.
There is also quite a social impact that these changes in negative gearing will have.
It’s no surprise that the postcode 4215, which is predominantly the Southport area here on the Gold Coast, contains a large number of rental bonds. In fact, the largest number of rental bonds in Queensland. It’s where the largest pool of tenants are because that is where they want to live. They want to be close to work, and Southport is one of the Gold Coast’s largest employment hubs. They want access to shopping, to medical services and schools and government departments. Most importantly, they want access to the best public transport, particularly at a time when fuel costs remain high. And they also want access to lifestyle amenities such as beaches and restaurants and entertainment.
If the government succeeds in directing more investors into new stock, the bulk of that stock is in newly emerging suburbs in outer regions. It’s not where the tenants currently are seeking to rent. Far from it. This will force many tenants to either travel longer distance, increasing their transport costs, or relocate entirely, disconnecting them from family, friends, schools, workplaces, medical providers and so on. This is a substantial upheaval of the lifestyle of tenants as we progress over the next few years.
In relation to the rental pool. Every year, a percentage of investors leave the marketplace through the sale of their properties. This occurs naturally through death and divorce. Sometimes it’s ill health and sometimes debt. It means there is a natural attrition and contraction of properties in the rental marketplace that can only be replaced by new investors. But as I mentioned above, 72% of investors are ordinary Australians who realize that their superannuation will be insufficient for them to retire on. And therefore take this scary proposition for most to buy one investment property to add to their retirement capital. It takes them off the pension for the future and makes them self-sufficient, but without negative gearing, they simply won’t be able to afford to buy.
Australia tested the removal of negative gearing back in 1985, although within two years the government had to reinstate it because of the shrinking rental market and rising rents, rapidly rising rent making much more difficult and challenging for tenants in total. New Zealand also had negative gearing and some years ago the then Jacinda Ardern government eliminated it, but has had to be reinstated once again because of shortages and issues in the rental accommodation field in New Zealand.
Negative gearing is also not unique to Australia. Countries including Canada, Germany, France, Japan where they all allow rental losses to be offset against income, and the host of other nations have a form of negative gearing.
Now, as the rental pool shrinks, then the government of the day will be increasingly forced to build and maintain additional public housing. If the private sector is not going to be able to do it in the numbers needed because of the elimination of negative gearing, then the government will need to step in and there’ll be a drain on our federal budget once again. Significantly, I think most of us know that when public housing is built tends to be in bulk big buildings in certain sectors of the marketplace not so desirable. So it’s often brings with it a whole range of social issues.
So what the government should be doing is actually incentivizing investors back into the marketplace and greater numbers, and doing a better job of encouraging developers to build the very types of properties the first home buyers would like built.
So it’ll be interesting to see whether this elimination of negative gearing for residential resale properties follows the same path as it did back in 1985, where and more recently in New Zealand, where we’ll have to reinstate it.
Now, there’s so much more I could share about this, and I’m happy to do so. If you’d like to reach out and seek any more information. But I think you get the gist of what I’m trying to say.
If it’s true that the government is trying to help 75,000 first home buyers into the marketplace, removing negative gearing is not the way to go.
In helping that 75,000 Australians, who are a small proportion of the 30% of Australians who rent out of our population of 28 million. Then they’re doing so at the expense of all the other tenants in the marketplace, who are going to be subject to rent increases significantly. And they’ll also, for most of them, face a lack of rental accommodation available to rent in the marketplace. More homelessness I see. This is going to have a huge impact on tenants, a huge impact.
For most of the new investors wishing to enter the market it simply means you will need to change and adjust your buying criteria. I would suggest then at most who can’t or won’t be able to pay the prices for brand new builds, that’ll be the bulk, that you will need to adjust the price of the properties that you would have otherwise bought so that you can borrow less, meaning there is less outgoings in interest and so on, and therefore less likely to be much of a negative gap between income and expenses.
One final point most negative geared properties only remain negatively geared for about, it’s a short period. It’s about five years for most. After that, they become positively geared and those investors actually begin paying tax on their rental income. So negative gearing was only ever about a short term cash flow assistance to help those investors buy rental properties for it, the tenants who most need them.
Well, enough of that for now.
Thank you for all the wonderful feedback regarding my interview with John Howard. This link will take you directly to that interview, if you haven’t yet had the opportunity to watch it.
Don’t forget, Vinnies CEO Sleepout is approaching on June 18 with a growing challenge of homelessness, and it’s everywhere and heaven forbid there will only be more of that following these changes to negative gearing. It’s so important that we come together to support those in need. So often it’s mums with their kids and so on. This year, Dylan Balmforth, head of our growth at Ray White Bell Group will be participating on my behalf as unfortunately I won’t be able to attend this year. So if you’re looking for a worthwhile tax deductible cause to support, click here for more details about the CEO Sleepout.
I’ll be back within a fortnight’s time with my thoughts around the capital gains tax changes. In the meantime, remember that life goes on. We all adapt. We find ways to deal with the challenges that we face in life.
All the very best as we move into this winter season.
