Latest / The Follio Property Podcast / Negative Gearing, CGT & New Builds: Every Budget Question Answered | Property Experts

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Negative Gearing, CGT & New Builds: Every Budget Question Answered | Property Experts · The Follio Property Podcast

• 0:00
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• 0:56
  We'll limit negative gearing for residential property to new builds and we're replacing the 50 per cent capital gains tax discount with inflation adjusted indexation to restore the taxation of real gains. We'll also introduce a minimum 30 per cent tax rate on capital gains
• 1:13
  Negative gearing is now being removed altogether. For established product, it could cost various clients anywhere from $200,000 to $700,000 in their borrowing capacity. Your serviceability is going to get smashed. They're going out there and beating their chest that they're helping young Australians get into the market. You're doing absolutely the opposite of that. You're making the gap between the rich and the poor even greater.
• 1:34
  Anyone that's aspirational in this country, we're going to have the highest capital gain rate pretty much in the world. Those that want to start businesses, those that want to invest and get ahead in life, work hard, make money, reinvest, get taxed. I don't believe in the research we've done up to this point that they're going to apply that to ****. So again, there's a vehicle where you can still purchase established property with negative gear and benefit. Our job, Rhys, on this podcast is to find those strategies and deliver it to the audience.
• 2:05
  Lachlan, a lot to unpack today. We're inundated with questions off the back of Tuesday night's live reaction. So keep them coming. We want more questions for podcasts next week as well. Yeah, and if we haven't got to your question tonight, just drop it again in this section. Like there was a lot to get through. We'll get through some of it tonight. We cover off on heaps, negative gearing, what it means, what it means to you as an investor, what it means potentially moving forward. Opportunities, we will discuss a few of those where we see potentially some opportunities in the market and what it means for the Australian property market.
• 2:34
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• 2:58
  Let's touch on the big ones here. So let's start off on negative gearing. Anything materially, any new information come out since we reacted to it two days ago? Any thoughts from yourself? I know you've been busy in meetings for the last 24, 48 hours. Any sort of follow-ups in terms of the negative gearing? The negative gearing, you know, a huge shake up there.
• 3:19
  It's grandfathered, so those listening that obviously have properties in their portfolio and I think what the budget's trying to do is try to reduce the gap in inequality. It's actually done the opposite. It's made it larger than it should be. But those that have purchased or got properties under contract, that's really important. And a lot of questions coming through, what does it mean? I haven't settled on a property. You're safe. You're still in the negative gearing zone. You'll be fine. What it means for people who want to build portfolios out in the future, we're going to have to be a lot more strategic around the cash flow management.
• 3:49
  Because understand, negative gearing, you don't go invest in property to benefit from negative gearing. We don't go to clients, hey, let's go and buy a negatively cash flowed asset so we can benefit from tax. That's not the strategy. You buy property for wealth creation. That doesn't change. Negative gearing is a benefit to you as an investor to offset some of that holding costs. When I look at that, people say, oh, it's just for wealthy investors to get richer.
• 4:14
  It's not aimed and it wasn't aimed for that. You take a risk when you invest in property to provide accommodation to the public. That's what you're doing as an investor. You are providing a service through accommodation. You take a risk. That property may go up in value or it may decrease in value and it costs you money to hold that property.
• 4:33
  The government previously until last night would give you some relief through negative gearing for that risk that you've taken. Now they've taken that away from us. So what does that mean for investors? Our strategy will change. The good news that was coming out sort of the day after, Wednesday, was you can offset any potential positive cash flow against negative cash flow. So what does that mean? Well, if I've got a blended portfolio where I've got one or two
• 5:02
  positively geared property, that could be commercial, it could be lower LVR residential, I can offset that positive cash flow against some potential negative cash flow assets in my portfolio. So again, it becomes a bit more strategic on how I blend out my portfolio.
• 5:19
  The other bit of information to come through is the fact that you can offset any negative gains throughout the duration, your London example, and I can offset that against my capital gain when I sell. So what does that mean? If I buy a property for 500, I sell it for a million dollars as a...
• 5:36
  a $500,000 gain event, if it costs me $100,000 during that period to hold it, mortgage costs, repairs, those sorts of things, well, then that comes off that $500,000 of now I'm getting assessed on a $400,000 gain. But then obviously, that goes into the capital gains and we'll talk about that in a moment.
• 5:54
  Off the back of the budget, we're releasing exclusive content for subscribers only. If you're interested in getting our live updates, make sure you hit subscribe. I think they're probably two really key things that we didn't know when the budget first got announced and is actually a positive for future investors in 2026. The losers in this is it comes down to serviceability. So people haven't spoken about this really at all and I think this is the –
• 6:18
  the devil in the detail, the things that people are not talking about, how much this actually smashes your serviceability. So again, who was targeted to hurt is meant to be the older generations. They've got plenty of cash. The serviceability is not particularly affected. And a lot of the baby boomers are actually, they own their properties in cash. There's no debt, so it doesn't really hurt them. Who it hurts, I believe, is your young aspirational property investor, probably listening to this podcast, that wants to build out a portfolio of two, three, four
• 6:48
  A rent investor, for example, the reason they do that is because with an investment property, you get a rental income, which increases your serviceability, but so does the tax benefit of negative gearing. So it's very easy or has been a lot easier to go from one, two, three properties because of the tax benefit you get when you factor in your serviceability. So we've done some scenarios with some brokers. A couple of examples are pretty extreme, but
• 7:14
  You know, a particular client that we looked at on $150,000 income currently has one negatively geared property. And if we look to add another one, their serviceability on that's going to get hit by $350,000, which is a massive difference. We've gone from potentially looking at a property for $750,000, $800,000 to likely, you know, potentially $5,550,000. So that asset looks very different now to what it potentially did, you know, 48 hells ago.
• 7:43
  I mean, a lot of where we're landing now is probably ruling out those investors that were being super aggressive, maybe over leveraging themselves and now... Well, they just won't be able to do it because they're not going to get the service ability to do it. You can potentially still look at other structures and we don't have that information now. But a lot of those aggressive investors, if you think of the property scouts and all those that fill them up with...
• 8:06
  regional assets. They were doing that through trusts where the same rules applied. Like you didn't get a negative gearing benefit through trust. So that won't change at this point, I don't believe.
• 8:17
  Okay. Let's talk through CGT. The big one was this 30% on capital gains. Yeah, no one knew what it was. People still don't know what it is. Yeah, that's been a lot of information. Do we have any specific questions or just what is it? Oh, we've got a load of questions. I just wanted, before we get into that, can you get your, you've obviously, you know, like I said, been meeting with a lot of people over the last 24, 48 hours. Yeah, to understand it, right? Well, what is this 30%? Because I'm still rough my head around it.
• 8:42
  So there's two 30%s. You've got the trust and that's how your discretionary trust and how you distribute funds, Rhys, is minimum 30%. And then you've got the capital gains, which again is the minimum 30%. So both targeting retirees –
• 8:57
  which is sad. We're talking about people that work their life to build up a nest egg and now want to distribute funds to themselves at a lower tax rate. So a good example where it's going to hurt the retiree for the CGT is when you have held an asset, it could be shares or property. Let's make an example that I'm going to make $100,000 in my shares. I've held them for more than 12 months, Reese, but I'm currently on $100,000. So if I sold them today,
• 9:22
  I'm then going to get taxed. I'm going to get a 50% discount based on the old model. So then that $50,000 of that is tax-free. The other $50,000 is going to go to my taxable income. And today I'm on $100,000. So then my taxable income goes to $150,000, which now pushes me into the highest tax bracket. So my accountant may have told me, Hey, Lachlan, how about you wait until you retire in two or three years' time and...
• 9:49
  and then you're going to get that $50,000 tax-free. But then that other $50,000, you're not drawing an income. So when you're not drawing an income, let's have a capital again event then. So then you're only going to get taxed at the lower marginal rate. So on that example then, Rhys, that other $50,000, your first 25K is tax-free and then it's 16%. So instead of getting charged
• 10:11
  you know, 16% on $25,000, I now get a minimal capital gains tax rate of 30%. So who this hurts, remember when they lost the election, I think it was 2018 or 2019, it was based on this dividends, franking credits, and now they're taxing. They're essentially taxing those that work, you know, years, decades to build a nested. That's who they're trying to...
• 10:36
  They're trying to pretty much say anyone who's generated wealth through any vehicles, be that shares or property, now minimum is going to be 30%. No one gets any less than that. So all that strategic accounting work that – and a lot of financial planners do years of preparation and planning of this. I work with my accountants all the time of how we plan forward tax events. Yeah.
• 10:59
  Something that goes out the window now because you're going to get taxed at the minimum rate of 30% and that's the minimum obviously is going to go up from there. So that's the GSD components to stop people holding on and selling to wait till they're either on a little or a lower income so then they don't have to pay as much tax. And then you've got your trust distributions, family trust and distributing at a minimum now of 30%. That again is targeting the same demographic, the older demographic that started to decrease
• 11:27
  you know, it's really end and business owners, those that earn income and distribute to their partner or their kids. And I can get why you can see that as a bit of a loophole, but think of a perfect example is mum and dad, right? So dad's a small builder in a little country down, does a few renovations a year. Mum was a nurse, now retired, that does all the books for dad, all the quoting and invoicing. She still does it by hand because dad's useless with the computer.
• 11:49
  So that business might make $100,000 a year in a really good year. Under the current – under the old system, he could get taxed at 30% and –
• 12:05
  They could get taxed at the marginal rate, the company tax rate of 30%, and then they're going to have to pay top-up tax, but at that level, it's 30%. When they could distribute it, and they have some poor years, they could distribute $50,000 to mum or $25,000 to mum, of which that $25,000 would be tax-free, or $50,000 and she's at the 16% tax rate, and $50,000 to dad at the 16% tax rate. So instead of paying 30% they have to pay now, they were paying 16%.
• 12:34
  So do you really want to go and target the most vulnerable? Like there's just a, that's mum and dad, just good local people in the local town. I'm sure dad's margin, he's not certainly ripping off the local demographic. And this is, you know, it's really going to hurt struggling businesses or small business owners that use this discretionary trust scenario to distribute funds. And it's not because they're trying to get away from tax because that's what's fair. Mum is involved in that business.
• 13:01
  and shouldn't be charged at the high tax rate because she doesn't do anything else. So that policy was there to enable those sorts of scenarios. And now mum, dad and kids both get smacked no matter what. If they distribute funds, $50,000 each, they're both going to get taxed. They would have paid $10,000 in tax last year. They're now going to have to pay $30,000 in tax.
• 13:23
  These are just good, honest people. Debbie and Donk worked hard their whole life and now their business, they're really working just to stay alive, to stay active. And you've got a government that's going to tax them more for it, to fuel their migration surge and their ridiculous spending. That's where I get a bit angry.
• 13:44
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• 14:44
  I'm sure there's many Debbie and Donks out there feeling the same pain off the back of the budget as well. And I think it's good to highlight a story like that to kind of bring it to life to, you know, the listeners that maybe haven't come across that yet. But the wealthy people that are meant to be targeting, Rhys...
• 14:58
  They always pay more than 30%. So it's not going to impact them. They've never paid less than 30%. So you're not targeting those that make a lot of money. Yeah, you might be able to get the odd distribution to a child for a small period of time, but really, tell me someone who's net worth over a million dollars that are paying less than 30%. They're not. Yeah.
• 15:18
  Let's go through these. There's a lot in here. And like I said earlier, some really good questions coming through around particular areas. Just quick starter with the grandfathering. So one of the questions that came in here was if existing investors are grandfathered indefinitely, won't they just hold forever, meaning less supply comes to the market, not more? Correct.
• 15:38
  Yep. If you've got a property, I look at the portfolio that we have and we've talked about whether to hold assets or trade assets, this becomes whether it's an A grade, B grade or C grade asset now, the conversation, your tax position in this scenario becomes really important. So we'll be meeting with clients and their accountant to work out the consequence
• 16:00
  And articulating that through our prop stack of the benefit, right, of holding these properties because you get that negative gearing benefit. So if you just sell an asset and the capital gain benefit now versus holding or buying into a new market where you don't get the negative gearing, it becomes a conversation that not every obvious answer that once was is going to be the obvious answer moving forward. Everything just got a lot more complex.
• 16:28
  and getting advice becoming. The benefit of this, I met with the accountant today, he's like, quite an affluent account, he's done quite well in business as well. He goes, that was a terrible budget, Lachlan. But this does not affect me at all. If anything, I just got a lot busier because it's so complicated, I just got a lot more work. That was from the accountant. So, and he goes, but me personally, I've made my money, this doesn't impact me at all. And I was just highlighted how ridiculous this budget is.
• 16:52
  So everything just got a lot more complex. So these decisions that were easier decisions to make in the past, let's trade out of this asset to buy this asset, the whole tax scenario comes into play. So selling things isn't as obvious as it once was. We're going to have to consider that into the conversation due to the benefit of holding it. But again, you don't buy property...
• 17:14
  to negatively gear. We never have. So quality assets are still going to outperform non-quality assets. So the fundamentals won't change, but tax planning has become more important. This is probably going to be a quick fire answer because I know you know this off the top of your head, but what are the grandfathering rules exactly? If you sign a contract before budget night, but settlement is after, are you covered? You're covered. It's contract day. Even if you had something contracted for the last two years, you're still protected.
• 17:39
  We've got a fair few on negative gearing and CGT, but I think what we can touch on actually is new build first just because we've done a pretty decent update there on CGT and negative gearing. And just for those that aren't aware of the news, new build doesn't qualify, sorry, does qualify for negative gearing moving forward post-2027. And capital gains. And capital gains. Exemptions.
• 18:00
  We've had a lot of questions. I know you've probably been busy over the last 24, 48 hours. We've certainly had throughout our business a lot of questions on this new build. So I thought some of these would be good to address. Won't pushing investors into new builds just drive up construction costs and build times given the existing labour shortage? Yes, absolutely. We've already had conversations over the last 48 hours that builders have increased their prices between 5% and 10% on the back of this.
• 18:24
  what did you expect, Labor? So I don't know if that's factual, that's anecdotally coming through, but of course, look what happened in COVID. If builders become busy, they jump up their prices. Trades become more scarce, so they put up their prices. So building is going to become more expensive as demand in building and construction increases. We've still got a land problem nationally, so even if things were to ramp up, you still need the land, so...
• 18:52
  And I don't – there's going to be a flight towards new build off the back of this. Essentially, it's free marketing for builders and those that spruik house and land packages. But smart money is not going to go there because we know it's not a good investment long term. So it might be a short-term sweetener over the next three to six months. But again, as we get more information and I think there's going to be a flight to quality because, you know,
• 19:18
  and occupiers are going to double down on their primary place of residence because it's tax-free. So, yes, you're going to see likely another inflationary event. Thank you, again, Labor government, by putting more pressure into that space. But I don't think, again, anyone listening, running down and starting to buy a house and land package is a good idea. Whatever you do, don't rush. Speak to an advisor because...
• 19:44
  they're going to go into areas where they're going to be flooded with investors. You could be talking suburbs where 80% to 90% of the demographic of that suburb are going to be investors. That's not good. I mean, you're going to higher vacancy rates in those areas. You're going to see, there's examples of these rates where they become slums. So, yeah, and then you're going to have huge defect problems, right? Any builder that gets put under that much pressure is going to take shortcuts. So...
• 20:09
  Please, as a listener, don't go and run out and buy these type of assets. I think you'll find more pain when you're stuck with a builder for the next three to five years because they go bust midway through or COVID. We've got a recent example six years ago. This doesn't end well. So avoid and make sure you qualify a builder if you're going down that space or even if you're building to live in, this is going to put pressure on the whole industry.
• 20:34
  It's interesting because you'd assume the reason they've left the negative gearing for new builds is to create more housing supply. Yeah, they want to create supply. It's probably the theory, right? But then you've also got these other elements to do with investors not wanting to sell their – hold on to their stock. So you're actually – where are all these new first home buyers going to be living? If the investors are still on the new build stock –
• 20:58
  And all the investors are holding on to their established stock. They go out to the fringes where there's no infrastructure. I love one of the comments that goes, what was the comment that I text you? It's good to see that Lachlan, wealthy investors like Lachlan really care about the infrastructure for first-time buyers essentially saying that I really don't care.
• 21:19
  I do care. But what I care more about is the tax, my tax dollars, your tax dollars, everyone listening, the money that the government takes from us and where they spend it. And these outer suburb areas, if they go through booms and they're under-resourced, which they are, there's no infrastructure there, it's your dollars, it's my dollars that have to get these ghettos back
• 21:43
  serviced with infrastructure. So now it's train lines, it's shopping centres, it's schools. So no, I do care about every listener and I want people to be able to have wealth creation through property. Do I care if you have a train to get into work every day? I don't care much about that. It's the fact that your money is now going to a government that has a spending problem. It's just created more of an inflationary problem and more of a spending problem to start to put money behind these areas that lack infrastructure. I'd rather go down the route of...
• 22:13
  you know, densifying the areas that are already established where there already is infrastructure. So then my hard-earned dollars and your hard-earned dollars don't go to this ridiculous cycle that this government's creating where they'll just spend more money and then tax people who work extremely bloody hard every single day.
• 22:33
  to fuel more spending. Exactly what this process does. Let's create more supply in areas where we don't have the infrastructure to support it and then, okay, we're going to need more money from our taxpayers to build schools and hospitals and all the stuff that comes with building out of fringe areas. It's not productive.
• 22:51
  Like we're the most scarce cities in the world. Like look at Perth, look at Brisbane, look at Melbourne. It's, you know, it takes you two and a half hours in parts of Melbourne to get to the airport. That's not a model that we want to continue to support. We want infill. Sorry for the rant, but that comment triggered something because it was like, yeah, I do care, but I care also about where taxpayers' money goes because look at Debbie and Dockers I spoke about, worked their whole life to pay for this government spending spree.
• 23:19
  Is there any, like there's a lot of questions here on, you've already addressed them, so there's no point in going through it, but I guess my summary would be on the new build stuff. Is there any new builds that make sense? So obviously you've got the benefit you can use from negative gearing. We're concerned about those outer fringes and what's going to happen to those long term. But is there any specific new builds where you see value? Yeah, definitely. I think there's...
• 23:44
  we've looked at this as a lot of the 48 hours because we have to pivot, Rhys. We have to be nimble and we have to work with market conditions, what market conditions give us and where we think the market's going to go. Where I do see some opportunity in the new build space is more in the development space. So say if, you know, you do it yourself, you buy a duplex or a triple X site or you team up with other investors and you were to buy a triple X site, well,
• 24:07
  Well, there's a great opportunity to go through that development process where we might build three houses. We've got Jonathan here in the studio. So Rhys, Jonathan and myself will go buy a triple X in, let's call it Surrey Hills in Melbourne. Let's call it Yokine in Perth.
• 24:25
  We then invest collectively to go through that development of which we subdivide and you get one lot, I get one lot, Jonathan gets one lot and then independently we go build out three townhouses. Well, that's a great way potentially to get ahead because we've built an infill location so they're landlocked. We're not getting sucked into this frenzy of out-of-fringe stuff.
• 24:43
  There's going to be limited supply in these areas because it's very hard to get rentals because no one's buying established product there because the negative gearing is going to hurt them too much. So you're going to have a really sought after asset from a rentability point of view. You've been able to still get negative gearing. You're going to get the capital gains discount exemption and we've been able to contribute in some development upside. So we've, you know, naturally if we buy one piece of land, chop it into three, there's going to be some upside in that risk.
• 25:10
  So again, it makes investing more complicated. But already today I've had 10 people reach out and say, heard me speak about that and they're like, yeah, I want to jump on that. So we'll start to probably link up clients together, Rhys. There's an opportunity to go invest in syndications. Those sorts of things become opportunities we've...
• 25:28
  have probably stayed away from just because it is slightly more complex. So again, it's a complicated budget. They've just made things really hard for average people trying to get ahead. It's now we're going to have to really think through it, more strategy. People like us are going to be more on demand, because we have to educate people on what to do, because it's now not easy. They've complicated it.
• 25:51
  Now onto some generic questions here. And this particular question I actually did address on Tuesday's episode. So it might be a follow-up to what I said there, but it says, is the RentVesta strategy actually dead or does it adapt? It's never dead. It definitely has to adapt because your serviceability constraints are going to restrict you. So we...
• 26:13
  and a lot of the questions that I had on my socials on Instagram, were from rent investors. And those that have done it up to this point are going to be okay. Those that are, and this again, you're trying to, apparently it's meant to be a Gen Z and a millennial focused budget. These are the ones that make it really challenging for, that are saving for the deposit for that strategy. I have one of the messages, he goes, I took your advice, pretty close to getting that rent first investment property, but last night it's changed it significantly. What does it look like?
• 26:42
  So we need to keep a, we always speak about capital growth and cashflow and trying to get that combination together. Now our cashflow is so important for your serviceability. So that rent versus strategy, it's going to be less land banking, it's going to be more cashflow focused. It doesn't mean we're going down the new built strategy. It just means we're going to have to look at different strategies like whether it's value adds, we're going to get an asset where we're probably going to spend a bit more on the renovation in year three to increase the yield. We're doing that day one.
• 27:07
  So can we manufacture some uplift in cash flow to increase your serviceability? Because that's all your rent vestor strategy trying to get three investment properties in quick concession, right? That's typically a lot of the goals that we work towards. So how can we do that? Well, we're going to have to get as close to neutrally geared as possible, which we can do through manufacturing value add type mechanisms to achieve that.
• 27:32
  So it does. It just pivots. It changes. But don't get sucked into the frenzy like I'm going to have to build now. People don't realize by building there is no equity. You're holding that asset for probably two years with no income. So you're paying debt and fees along the way for two years with no income. So it's probably going to cost you $30,000 to $50,000 a year. Okay. That's over two years. It's cost me $80,000. I'm behind $80,000.
• 27:59
  that 20K that I might be losing on an established asset isn't as bad as not getting any income through that building process. So just be mindful and make sure you're doing your numbers and comparing like for like over a five-year to seven-year period, not, okay, wow, I get a massive win from going out there and constructing and getting a negative year and benefit. Next one is, Lachlan, does the accidental landlord now become a viable strategy in 2026?
• 28:26
  Accidental landlord, your favourite strategy. That one was submitted by R. Betel.
• 28:33
  Accidental landlord, yeah, it does. Like, again, a flight to quality, I think this is going to become more common because you're going to be in a capital gains-free environment, right? So I think your prime place for residence, I've always said, is arguably one of, if not the best strategy for wealth creation. So it does, it doubles down on that. Super is another one, becomes really, really topical. I'm sure you've asked me questions on that, but super becomes a place where it's a lower tax environment.
• 28:57
  So yes, Reece, accidental investor might be a common place for wealth creation, but the problem with that is you're going to invest in your own backyard, which is not always the best way to get ahead. And again, tax doesn't change the way we approach property and where we invest from data point of view, from macro markets, micro markets. It does come into the equation in terms of portfolio advice, but it's not going to dictate where we buy it.
• 29:24
  So if you're an accidental landlord and you're buying and trading or upgrading at the top of the cycle, well, that's likely a bad decision. You know, we still want to follow markets. And a capital gain is still a gain. Paying tax, you're paying tax because you've made money. So it's not, you know, we don't want to go down loss-making exercises to try to avoid or pay less tax, right? We still want to keep the eye on the prize, and that is to buy the best asset we can with the largest capital gains possible because it means we've done the right thing.
• 29:54
  To answer your question, there's a space for it.
• 30:12
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  That's very illegal. So there goes my big idea for the commercial. Give it a try at mintmobile.com slash switch. Upbound payment of $45 for three months, $90 for six months, or $180 for 12-month plan required, $15 per month equivalent, taxes and fees extra. Initial plan term only greater than 50 gigabytes may slow when network is busy. See terms. You actually briefly touched on answering that question, but what does flight to quality mean practically? Which specific markets and property types benefit and which are most at risk?
• 30:54
  when I spoke about this on Tuesday night, what I was referring to is because it's been, it's naturally made it harder for people to see obvious ways to get ahead. And you know what property investment is like, if there's enough reasons, you don't need a lot of reasons not to do something. We've seen that so many clients. It's like,
• 31:10
  The moment there's something that's too hard to understand, they just won't do it. And the biggest barrier to entry of property investing typically is not serviceability. It's decision-making and decision fatigue and finding a reason. It's typically sentiment that just stops them from doing it or gets too hard or I just get busy.
• 31:27
  So I think for those more lazy investors where it was easy to say, okay, I can buy a property, I can buy multiple investment properties and I'll get a vehicle where I can get a capital gain that's going to help me offset some of the holding costs. That makes a lot of sense. I've got my prime place of residence and I'm going to go get three or four investment properties and I'm going to get a gain from doing that and I'm going to get a tax benefit from doing that. Well, now all the news and all the headlines and listening to us, it's just too complicated.
• 31:56
  My house is tax-free. Instead of buying a $1 million home and selling it in five years for $1.5 million and getting $500,000 tax-free, why don't I just go all in on my prime place of residence, get my debt to income up to six times and go and buy something for $2 million, sell that for three?
• 32:14
  I'm far better off. So that flight to quality, I think is going to be just natural within the market for people that don't understand property investment in full. So they're going to go, well, bugger this, I'm not going to dilute my pool of investments. I'm just going to double down on my home. I think there's going to be a massive movement in the market for that. So the flight to quality means people are going to spend more, renovate, upgrade their home
• 32:40
  more than they've ever had before. That flight to quality is going to mean people are going to spend more in established area and blue chip locations and they're going to be less likely to invest in established out-of-fringe areas, for example, or regionals where they've been able to get a bit of a tax break.
• 32:57
  So I think the ones to answer your question, they're going to get hammered. They're going to get hurt. I think regionals are going to get smashed off the back of this, established regionals. And you certainly don't want to be, you know, buying land estates in regional areas. I think that's like, that's the worst crime in property investment you can possibly take is by, I did it, my first investment, off the plan regional asset. And obviously we've spoken about that. So do not do that.
• 33:20
  and then you're out of fringe suburbs that have done well in markets over the last five years, you're out of burbs that are currently established. I just think they're going to get whacked. And before the budget, I mean, you've been talking about regionals coming off this year. We've seen it. We've started to see the data come through. So this is another...
• 33:37
  dagger into the regional market and compromise locations. So that flight to quality. And it means those that do have investment properties in those areas, they become really scarce. These blue chip areas. And I think what we've noticed over the last five years, Rhys, is the price difference between your entry level and your more blue chip upgraded suburbs, that's shrunk. Because we've seen such a run at the lower end, right? And this is a big problem. We've seen what was $600,000 is now $900,000.
• 34:05
  But what was 900,000 is probably only one won. So that gap shrunk. I think that gap's going to increase significantly now. You know, people are going to be spending more in aspirational suburbs.
• 34:18
  That doesn't mean $3 million suburbs. That means what's in your local area, your landlocked area that is aspirational. I think that's where you're going to see that flight to quality. This one's a good one for us because I know it's pretty close to our business. But the question says, what does the budget mean for units and apartments, specifically given their higher yields and lower growth profiles?
• 34:40
  They're going to go on a run. Yep, units have been going on for a run nationally and in some markets outperforming houses. I think that's going to be exaggerated through this because to hold investment properties, cash flows become more important. Units, typically the cash flow is stronger than it is established houses. So I think you're going to see a run on with those type of assets.
• 35:00
  Opposite to that, what will struggle, those blocks of land that I love buying, if they're not going to be or can't be developed. So those single lots that are on big blocks that don't have the zoning to be developed, it can be very difficult to trade unless it's an own-occupied. It's got great ambitions to do a renovation or extension. Those that personally, 90% of my portfolio is buying big blocks, holding long-term, land banking, that can't happen now.
• 35:30
  because I don't get that direct benefit of gearing. So it just, like I said, you're going to have to pivot. What has worked in the past won't work in the future. So those larger blocks of land that have sat there for periods of time, but what you'll find is because the capital gains change, you might see a few of them start to try to sell. So those that have been sitting on big blocks for a long time are now looking and going, well, even if it's pre-1985, I'm going to get, and the way they're going to tax me is going to be very, very different. So I might need to sell, but then the buyer, the buyer pool for that product is going to be a lot less.
• 36:00
  This is a really good one, actually. It'd be interesting to get your take on it. It might differ. But if borrowing capacity drops 200 to 500K off the back of not being able to utilize the negative gearing benefits, does that put a downward pressure on established property values? So is this a good thing or a bad thing?
• 36:19
  Not necessarily reached because in these established locations, typically 80% to 90% of the demographic buying in these established locations are own occupiers. So it doesn't affect their serviceability to buy a home at all. It's predominantly going to smack those investment areas that we spoke about because those that have been driving markets through investment over the last five years –
• 36:42
  now don't have a continued capacity to support that investment. So I think your established own-occupied dominated areas won't be impacted because 90% of the debt coming in there is own-occupied debt.
• 36:53
  One of the big things to come out of the budget was actually the non-mention of self-managed super funds. Superannuation wasn't sort of touched at all. No, it wasn't. So that's, I think, there's going to be movement towards super. You know, it's obviously a vehicle where it's gone sort of become topical, less topical. I think it becomes really topical now as people use that to, you know, ideally pay less tax. So I think...
• 37:19
  They haven't, and again, the devil's going to be in the detail, hasn't been spoken about it. We don't want to bring it to the attention of the forefront, so let's move on to the next question. LAUGHTER
• 37:29
  Regarding CGT, do existing investors need to get valuations before July 2027 to establish their CGT base for the indexation model? Yeah, they haven't. Obviously, the detail hasn't come out as to what that's going to look like, some valuations. But yeah, absolutely. Everyone's going to have to get their asset valued come July 1 next year to determine at that point what it was worth before indexation kicks in. So that's, again, another cost that comes to the consumer. Thank you.
• 37:58
  Is there any, regarding that, is there any specifications on, you know, qualifications for that or? Like swarm valuation means certified practice in value. So someone like myself, Reece, or of that effect will have to participate in those valuations. We're not licensed at folio to give swarm valuations. So at this stage, it wouldn't be a firm such as us.
• 38:16
  But they haven't contextualized if it's a sworn valuation or a price assessment from a people qualified firm like us or not. That hasn't come out. But again, it's another complication that's going to mean accountant's going to pocket more dollars because it's become more complicated. If I had an investment property positively geared, could I refinance that turning it negatively geared and claim the negative gearing benefits because I've owned the property before?
• 38:47
  As I read it, Rhys, it's properties held prior to budget night. So we will confirm that the way it reads is if you've held the property prior, then you were under the old rules. So if you held the property and it's currently positive geared and that was to change negative gear and you held that property or purchased it prior to budget night...
• 39:07
  you'll still benefit from negative gearing. If you held a property before budget night that was your home, which is now an investment property, you're still subject to the old rules. That is my assessment of that. And I will confirm in our next podcast, but as I read it, that's how it applies. Excellent.
• 39:23
  We'll do another podcast next Tuesday on the same sort of topics. Send in your questions. These were, like I said, rippers, like some of the best ones we've probably seen on the podcast. Yeah, any more. Love it. Any questions you can come by, I'll do my best to answer them. And I'm sure from recording this on Thursday to next Tuesday, there's probably going to be some more information come to light across some of these changes too. Yep. You've been listening to the Folio Property Podcast.
• 39:55
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• 40:26
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