Douglas Driscoll, CEO of Starr Partners, is warning that Labor’s aim to limit negative gearing to new apartments and house packages to ‘soften’ the market for first home buyers may inadvertently push more property into the hands of overseas buyers.

“Labor’s proposal to limit negative gearing to new developments and halve the capital gains tax coincides with other recent changes in the property market: a wave of new apartments and stringent macro-prudential measures. This will create an extended period of property price stagnation. If our own investors are impeded further, this is likely to lead to more competition from foreign buyers.”

Douglas’ comments come off the back of a report released last month by Chinese international property portal Juwai.com, which named the “desire to get a bargain while the market is soft” as a major factor motivating Chinese buyers to Australia this year.

Douglas also points to the tightening regulations on many overseas property markets as a major factor attracting overseas buyers to Australia.

“Despite Australia’s tight regulations on foreign investment, other overseas property markets are tighter – including China, Canada and New Zealand,” says Douglas.

“Unlike in Australia, the Chinese lack many appealing alternative investments at home and, due to government crackdowns on peer-to-peer lending, private equity funds and with the majority of their property being leasehold, many investors are forced to look elsewhere. Labor’s proposal to level the playing field for first home buyers will create unique opportunities for foreign buyers looking to capitalise on a ‘softer’ market and I’m expecting to see this kind of investment gain further momentum this year.”

With the proposed abolishment of negative gearing concessions likely to lead to a prolonged period of stagnation for house prices in much of Sydney, Douglas suggests that some Australians may even start looking to invest elsewhere, including overseas. “I think we might see the emergence of savvy Australian investors learning from foreign buyers, and look to invest in property overseas themselves.”

“Although New Zealand’s Parliament clamped down on non-resident foreigners from buying existing homes last year, Australians – among the largest purchasers of homes in New Zealand – were exempt from this ban," explains Douglas.

“Whether you’re looking for a home to live in or an apartment as an investment property, it’s relatively easy for Australian citizens to invest in New Zealand, and it can take as little as three to four weeks to complete a house purchase.”

“If we’re not careful, we could find ourselves in an unusual situation wherein we see an influx of overseas investors buying property here, while our own investors start to purchase overseas. Surely, this wouldn’t be in the Government’s best interest.”

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