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BFCSA: Labor negative gearing, CGT policies 'sound', KPMG Economics says

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Labor negative gearing, CGT policies 'sound', KPMG Economics says

Australian Financial Review 09 Jan 2019 11:59 PM

Michael Bleby


Labor's negative gearing and capital gains tax policies would need to be introduced carefully but are "sound", KPMG Economics says in a new report on the Sydney and Melbourne housing markets.

The opposition's plan to curb the tax breaks allowed on investor purchases of established dwellings and to halve the 50 per cent deduction on capital gains allowed all across asset sales would be unlikely to distort the mix of investments across asset classes, KPMG chief economist Brendan Rynne said.

And even though the policies could affect the market of investment for rental housing in the short term, they were sound, Mr Rynne said in comments accompanying the report Housing affordability: Sydney and Melbourne housing market update. The report notes that superannuation funds are already exempt from the Labor policy.

"These policies could have some impact on investment in dwellings for rental purposes, especially in the short term, as it will take time for the developer market to produce new dwelling stock for tax-approved investments," Mr Rynne said.

"Overall, the policies proposed are sound, but their introduction would need to be managed carefully."

The report also points out that under the Labor policy the tax breaks would continue to apply to people with existing investments and that the implementation date of Labor's proposals is unclear.

The KPMG report bucks the trend of recent housing market outlooks such as that of Corelogic and Moody's and ANZ Research, which predict Melbourne housing to fall more than Sydney this year.

Taking a more positive outlook than other commentators, such as AMP Capital economist Shane Oliver, who late last year predicted a peak-to-trough decline of 20 per cent in housing prices in the two largest cities, KPMG expects a decline of 13 per cent in Sydney and a fall of just 5 per cent in Melbourne. Sydney would bear the brunt of declines largely due to the NSW capital's greater dependence on investor buyers.

"Our analysis also suggests the price declines will be more moderate than what other commentators are suggesting, and there is likely to be a noticeable difference in expected price growth between Sydney and Melbourne," the report says.

"Melbourne [is] to suffer about half the percentage price falls as forecast for Sydney in FY19, and Melbourne should also experience a faster and stronger turn around in its residential property market than will Sydney during FY20 and FY21."

Melbourne prices will fall 2.2 per cent overall in the year to June before rising 2.4 per cent next year and gaining 4.7 per cent in 2021, KPMG estimates.

Sydney will fall 4.2 per cent this year and a further 1.1 per cent next year before rising 3.5 per cent in 2021, it expects

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