The Future of Property Investing with Investment Property Brokers: What Changes Are on the Horizon?
In a highly regulated environment, property investment growth can be slower. Consulting with an investment property broker, a real estate professional who can help you navigate the complexities of the market, is recommended before you enter. They can guide you through the changes you need to be aware of to make informed decisions.
If you're one of the growing number of Australians exploring real estate finance and investments, partnering with an investment property broker is especially important. The regulatory framework around the market sector has been changing, with the government tightening the lending process for investment buyers and reducing some tax breaks.
An investment property broker can help you navigate these changes and find the loan solution that best fits your needs. They can also help you understand the current challenges in the market and factor them into your investment plans.
Lending cap now scrapped
Over the past few years, the Australian Prudential Regulation Authority (APRA) has encouraged bank lenders to give more favourable interest rates to owner-occupiers and for principal and interest loans. The strategy included limiting banks’ lending to property investors to no more than 10 per cent, and imposing a 30 per cent cap on banks’ new interest-only mortgages – loans favoured by investors.
According to APRA data, interest-only loans plunged by nearly half in just three months and interest-only lending dived 44.8 per cent during the 2017 September quarter, to an historic low of just 16.9 per cent. In 2014, APRA announced that from July 1 2018, the 10 per cent investor lending cap would be scrapped, having achieved the desired effect. The benchmark on interest-only lending, however, will continue to apply.
New depreciation laws
Meanwhile, the federal government has also cracked down on residential property investors’ ability to write off parts of their investment, with changes to the investment property tax rules impacting depreciation and travel allowances.
Legislation was introduced from July 1 last year, which restricts owners of investment properties when claiming depreciation on their assets.
Under the changes, used and second-hand depreciating assets in residential rental properties are no longer deductible. This only relates to investors who bought an existing property after May 9, 2017.
It also means buyers of existing investment properties after that date cannot claim depreciation for plant and equipment items such as air conditioners, carpet or hot water systems, if they did not pay to install or replace them themselves.
Previously, if the investor-owner of a property had not installed such items during their ownership they could still claim depreciation on them, up to a certain period of ownership.
The law change doesn’t affect buyers of brand new properties, who can continue claiming depreciation in the same way.
Changes to tax deductions
In another tax law change that came into effect at the same time, travel expenses relating to inspecting, maintaining, or collecting rent for a residential rental property can no longer be claimed as deductions by investors.
Under the changes, investors can still claim a deduction for the cost of employing other parties to carry out tasks, such as real estate agents for property management services, or tradespeople.
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