Property Investors Face Mounting Pressures as Governments Tighten Regulations
While ending negative gearing on property investments remains politically challenging, various Labor governments across Australia are implementing measures that significantly impact property investors. Rather than eliminating negative gearing outright, these governments are gradually introducing policies that make property investment less attractive.
State-level changes, such as increased taxes, new levies, and restrictions on rent hikes, are making it harder for investors to maintain profitability. According to real estate giant CBRE, property taxes, stamp duties, levies, and council rates are expected to continue rising. These pressures, combined with increasing non-tax expenses like interest rates, repairs, and maintenance, are squeezing landlords, reducing their ability to pass on these costs to tenants.
Despite persistently low vacancy rates, the pace of rental growth has slowed across all major cities, with gross rental yields stagnant at 3.7 percent. After accounting for holding costs, net yields are typically 1 to 3 percent lower. With more attractive, low-risk investments available elsewhere, property investment for yield has become less appealing.
East Coast Under Pressure
Investors in Victoria and New South Wales are feeling the greatest impact. New lending for property investment increased by 30.2 percent nationally in the year to June 30, but growth was below that in both Victoria and NSW. In Victoria, the increase was just 9.4 percent. The state has some of the highest stamp duties and land taxes in Australia. Recent changes include a lower tax-free threshold for land, a new COVID-19 recovery levy, and higher land taxes. A short-stay levy will soon apply to owners using their investment properties as holiday rentals, and one Melbourne council is considering imposing higher rates on investors.
The NSW government is also taking steps that discourage investment. It recently froze the tax-free threshold on land tax, which will result in more investors becoming liable for the tax due to bracket creep. Plans are also in place to ban no-reason evictions, limiting investors’ ability to adjust rents in response to economic conditions or increased costs.
Queensland’s Unique Position
Queensland stands out in the investment landscape. The state posted above-average growth in investment lending, thanks in part to strong property price performance and relatively moderate regulatory changes. However, Queensland’s respite may be temporary. While former premier Annastacia Palaszczuk withdrew plans to include interstate property values in land tax calculations, current Premier Steven Miles has promised to review property taxes if he wins the next election. State treasury forecasts suggest land tax receipts will increase by more than 60 percent over the next four years, which could spell further challenges for investors.
Additionally, recent legislative changes mean that landlords in Queensland can only increase rents once in a 12-month period, a rule now tied to the property rather than the tenant. This regulation forces landlords to offer the same rental rate to new tenants if the previous increase occurred less than a year before, regardless of market conditions or additional costs incurred.
Shifting Dynamics
As policies increasingly favor tenants, governments may overlook the essential role that landlords play in Australia’s housing market. Even with efforts to improve housing affordability, it is unlikely that property prices will reach levels accessible to all prospective buyers without a market crash. Furthermore, not everyone wants to own a home; some may prefer the flexibility of renting or investing their money elsewhere.
With so many factors diminishing the appeal of property investment, many investors may choose to exit the market rather than endure what seems like a slow and painful decline in property yields.
