One of the proposed changes we could see if Labor wins power at the next federal election is to negative gearing legislation; with talk around restricting the tax incentive to investors purchasing new dwellings only, leaving established dwelling investors out in the cold.
Current and previous political leaders have already managed to curb enthusiasm for existing residential real estate, directing greater attention toward our new housing markets in a bid to increase accommodation supplies and maintain sustainable market growth patterns (apparently).
So much so that we’re now witnessing unprecedented levels of new apartment construction activity right across the eastern seaboard.
Interestingly, local investors have traditionally stuck to established housing markets (93% bought an established dwelling across 2013-14), with much of the new housing activity attributable to foreign investors.
If the opposition steals the ultimate seat of power however, it’s likely that Aussie investors will start to look more favourably on the idea of buying or even building new, rather than acquiring an iconic piece of vintage suburbia.
What to consider
As always, it’s never advisable to base any investment decision you make on the potential for short-term tax savings. You need to remember first and foremost that Australia is still very much a nation built on home ownership.
As such, it’s not investors that ultimately decide the ebbs and flows of housing values, but everyday homeowners. Negative gearing entitlements won’t make one iota of difference to their buying decisions. For them, it’s always about the emotional investment – the location, the amenity and the desirability of the real estate in question.
These are the enduring fundamentals whose consideration must always precede any external market influences, such as changes to investor behaviour driven by government driven regulatory amendment.
Of course, that’s not to suggest you should entirely dismiss the notion of constructing your next housing asset. I’m just saying the decision to tackle a development project should be based on carefully considered due diligence, aligned with your overall strategy, investment objectives and personal circumstances.
If, after analysis of the facts and figures a new build makes sense for you, then it’s time to think about the very different logistics of building new versus buying established…
The money
Financing a new build looks very different to acquiring loan approval for an established dwelling. Often you’ll be considered a ‘developer’ and must seek development finance, which can be a complicated process when you don’t know how to approach it.
It’s critical to maintain a tight budget and schedule of works when it comes to the proper management of a construction loan, which is paid out at key intervals of the project.
Finance structuring for this type of endeavour can bring novice developers undone, so it’s a good idea to seek professional advice from an experienced broker who has arranged development loans for past clients, along with an accountant who can assist in managing the money side of your investment.
The cashflow
Another thing to keep in mind is that while you’re property is being built; you obviously need to service the loans yourself. Unless of course you build to sell rather than hold, in which case you might be able to pre-sell product to assist with your debt.
It could also take some time to find tenants on completion, so think about commencing the process well ahead of time and having people lined up to walk through the door as soon as the place is legally liveable.
The headaches
Unless you’re a qualified project manager, it’s likely you’ll need to hire someone to manage the build on your behalf.
Those who fancy themselves as developers, but have never experienced the realities of a ‘fixer upper’ let alone undertaken any form of new housing construction, are the ones who end up in all sorts of strife.
Managing a build takes a lot of knowledge and effort, and will generally come with its fair share of headaches. After all, you’re trying to coordinate a lot of money and a lot of different skills within some serious time and financial restrictions.
If you think you can do it all yourself, chances are you’re dreaming. Even experts ask for help!
If you’ve gone through the reasons, think they’re all the right ones, and still want to build your next property investment, why not contact Trilogy Funding?
We’ve helped hundreds of investor clients secure THE RIGHT property development finance to take their portfolio to a whole new level and we can do the same for you too. Click here now to connect with us today.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).