Negative gearing: House prices could 'drop overnight' if changes introduced


Aussie Home Loans Chairman John Symond has warned property prices could plummet as much as 20 per cent overnight, if negative gearing on established dwellings is abolished, but another expert says that claim is rubbish.

More than a million Australians negatively gear property, but Aussie Home Loans Chairman John Symond says changing the rules could see house prices plummet.

He says chaos may ensue, possibly destabalising the economy, which is in the midst of transitioning from the resources boom.

Mr Symond told 2GB that scrapping negative gearing on existing homes could see prices fall immediately.

"Who knows how low values could go, it could be 10 or 20 per cent overnight," he said.

SQM Research Managing Director, Louis Christopher disagrees.

"I think that's really implausible. For that event to occur, what we would have to see is forced sales activity."

Mr Christopher says grandfathering clauses would mean existing investors would keep the tax benefits, and thus limit forced sales, but admits new purchasers seeking to buy established dwellings may have the upper hand.

"That investor will demand some type of discount to compensate them for the lack of having that particular tax benefit."

That adds to Mr Symond's concerns.

"A lot of them will panic and say we've got to sell we've got to sell and that will have a domino effect."

Lower prices however, are exactly what many first home buyers would like to see.

All up, the value of home loans rose 0.2 per cent in March, mainly driven by an uptick in investor lending.

But the Bureau of Statistics says first home buyers formed only 14.2 per cent of total owner occupier loans in March, down from 14.6 per cent in February.

Mr Symond says that part of the market does need help.

"Home grants don't work, all that does is potentially inflate the prices the vendors get the benefit and the first home buyer pays too much.

"You could incentivise first home buyers by ...taxing them less on their savings, the deposit they're building up."

Mr Symond does concede that the current negative gearing scheme is generous, but says any changes should be within a longer transition phase and part of a broader review of taxes.

"You might introduce a cap, that up to a certain amount you can claim."

Mr Christopher also says there are areas of negative gearing reform which can be improved.

"Restrict negative gearing based on the number of properties you have."

In the meantime, those paying off a home are more confident according to Westpac's Global Head of Economics Bill Evans.

"We saw a 15 per cent jump in the confidence of those folks who have mortgages."

The federal election call, along with a cut in official interest rates, saw Westpac's Consumer Sentiment Index hit a two year high. The reading above zero suggests the optimists are outweighing the pessimists.

"We asked a separate question about how people felt the budget impacted upon their finances. More people said negative than positive, but that's fairly standard," Mr Evans said.

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