If you’ve been thinking about adding to your property portfolio, now is the perfect time to pounce. We explain why.

APRA changes

Last month, the Australian Prudential Regulation Authority (APRA) issued a letter requesting banks to ease their lending rules. Specifically, APRA has removed its earlier guidance that lenders assess mortgages on the borrower’s ability to repay at an interest rate greater than 7%.

APRA first introduced the “greater than 7%” guidance almost five years ago in December, 2014, as a way to counter over-borrowing in a country where interest rates were low, wage growth had stagnated, and household debt was high.

Though those factors still stand today, APRA chairperson Wayne Byres said last month that recent developments led the authority to reassess their guidelines. These included the introduction of differential pricing for owner-occupiers and investors, and the ongoing decline in interest rates, which made a mandated interest rate floor unnecessary.

The removal of this guideline is expected to make it easier for buyers applying for loans, and in some cases will give them 33% more borrowing power. In essence, if you’ve been thinking about purchasing another investment property, you’ll be able to get more bang for your buck.

Interest rates reduction

This month, the Reserve Bank of Australia (RBA) cut interest rates again to a record low of 1% from 1.25%. Up until then, it had been almost three years since the RBA made a change to interest rates. Many market watchers are predicting another reduction this year.

As per the APRA changes, these lower rates will enhance borrowing power by making mortgage repayments lower. The big four banks quickly announced they’d start passing on the savings, and Westpac in particular had investors in their sights, providing a 35 basis point cut for interest-only property investors.

After last months interest rate reduction, the Commonwealth Bank and NAB both passed on the full 25-basis-point reduction to customers, and other lenders that also passed on the full amount include Athena Home Loans and Reduce Home Loans.

Negative gearing

Prior to the election, many people were concerned regarding proposed changes to negative gearing laws. Labor had promised reforms to the tax break in order to make it easier for first home buyers to enter the property market, and their reforms would have meant negative gearing was only available on new properties. But now the election is done and dusted, and the Liberal government retains power. If you’re an investor, this is good news. Negative gearing policies still stand and you can leverage them on both new and old properties.

Capital gains tax

As with negative gearing, Labor campaigned on proposed alterations to capital gains tax. The party’s plan was to cut the capital gains discount on investment properties from 50% to 25%. If this change had been adopted, investors would have been taxed on 75% of the capital gain. But the Liberal party is opposed to reforming capital gains tax, which means investors will continue to reap the full 50% discount if they decide to sell a property. 

“The Liberal party’s position on the capital gains tax discount will allow one of the key benefits property investors receive to continue, and should shore up confidence in this area of the property market,” says Kay & Burton’s financial controller Anthony Gibbs.

Quality properties

Not only are there a range of tax and interest rate benefits available for investors, but there are currently some great properties on the market.

Loretta Truscott, property management advisor at Kay & Burton, says she’s seen some stand-out properties added to the agency’s listings in recent weeks. Her top recommendations for investors include a stylish Burnley townhouse, 10/205 Barkly Avenue. Over in South Yarra,  33/390 Toorak Road is a bright and renovated three-bedroom apartment, and just up the road in Toorak, 1/16 Tintern Avenue is a ground floor, two-bedroom apartment set against pretty gardens.

Monique Depierre, senior sales consultant at Kay & Burton, says there are also some excellent off market opportunities, including tenanted properties at very good returns.

Market Insights

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