Scrapping negative gearing on existing residential properties and cutting back the capital gains tax discount are reshaping where investors look for returns. Residential investors now face weaker tax advantages just as analysts forecast the steepest house price declines in around 40 years.
Commercial property now looks more appealing, offering higher yields at a time when investing in existing homes carries more risk and less after-tax income.
Charter Hall reports inflows of $6.5bn so far this financial year. The group anticipates even more money heading its way as investors digest the federal budget changes.
Internal analysis points to capital shifting away from low-yielding residential investments and into commercial property vehicles that promise stronger income streams. The expected rotation is projected to affect most major commercial sectors.
Executives at Charter Hall link the expected switch directly to the changing economics of residential investment. Lower income returns from housing combined with reduced tax benefits from negative gearing blunt the appeal of existing dwellings as an asset class.
Commercial properties, in contrast, still offer comparatively robust yields, which become more attractive when tax settings no longer heavily favour residential investors. That gap between income potential and tax treatment sits at the heart of the anticipated reallocation of capital.
