Each Election Day comes with a list of proposed changes from various political parties. That is not anything new. What is new, however, are the proposed changes to negative gearing and how the election on Saturday is shaping up to be one very important day for the real estate industry – especially if negative gearing is abolished.

Some experts are saying that house values could drop by as much as 20 per cent if negative gearing is taken away. That kind of drop and the ramifications it would carry throughout the economy is unimaginable.

This is a sticky situation and one we would prefer not to speculate on, so let us take a look at the facts…

In a recent state-wide survey by peak body, Real Estate Institute of Queensland (REIQ), a massive 79 per cent of investors said they will abandon property as an investment strategy if Labor’s negative gearing changes were brought in.

That is over three quarters of investors who are prepared to look for a new investment strategy should the new proposed negative gearing changes see the light of day.

Principal of HS Brisbane Property, Hannah Schuhmann believes that the proposed changes to negative gearing would be catastrophic for the Queensland property market.

“There has been a lot of speculation surrounding Labor’s plans to abolish negative gearing and what kind of negative impact this will have on the real estate industry as a whole, and unfortunately recent findings from the latest REI survey only provide further confirmation of this,” said Schuhmann.

REIQ Chairman Rob Honeycombe agrees with Schuhmann, stating in a recent press release that changes to negative gearing would be disastrous for the Queensland property market.

“We now know for a fact that 79 per cent of respondents will get out of property and find an alternative investment strategy that works more effectively and yields a better return,” he said.

“That will have a crippling effect on house values and on the rental market, where the private rental market plays such a critical role in keeping rents affordable,” he said.

Mr Honeycombe said the survey also indicates that removing negative gearing would crush rental affordability as investors sold their assets and adopted a new investment strategy – especially here in Queensland, given that investors provide rental accommodation for about a third of Queenslanders.

Now let us take a look at how it might affect the value of property. The Grattan Institute’s report also suggested that putting such restraints on negative gearing could potentially wipe two per cent off housing values.

What does two per cent mean in the scheme of things? Well, based on CoreLogic’s estimate that residential real estate in Australia is valued at about $6 trillion then one can safely assume this two per cent would represent around $130 billion in value which would be instantly removed.

And that is just the immediate effect. Imagine the long term impact on the broader economy and how this would the entire country as a whole? It would be far reaching - from the government right through to all those industries that work simultaneously with investors and property professionals, from finance consultants and institutes to building inspectors, etc. – the list goes on.

Property Council chief executive, Ken Morrison, says the changes would have a huge impact on the economy. 

“Almost two million Australians own an investment property and almost 1.2 million negative gear. This is an industry that is vital to our economy; 1.1 million Australians rely on property for their jobs and property generates one-ninth of Australia’s GDP,” he tells The Australian.  

Plus, then you have the government and how this change would affect revenue such as stamp duty and GST.

“The State Government would lose a significant amount of revenue from stamp duty if people’s house values fell by two per cent, and the Grattan Institute is being very conservative with its estimate of two per cent,” said Honeycombe.

“How does the State Government feel about this massive loss to revenue? Recently released ABS data reveals that revenue from property taxes at a local and state level have increased 70 per cent over the past nine years – representing an increase of $1.6 billion in council rates and $1 billion in stamp duty over the past nine years.

“Negative gearing will decimate those tax revenues, adding further stress to local council and State Government budgets. Regional Queensland councils can ill-afford this enormous hole in their budgets.”

In addition to a significant loss in stamp duty revenue, the government would also lose out on a range of taxes paid by associated service providers, such as the GST paid by the financial advisor, the accountant, and the real estate agent who facilitated the transactions.

“Negative gearing plays an important role in the Queensland property market and any changes to it will be detrimental,” he said.

Whether you are an investor, tenant or owner-occupier, when it comes to popping your vote in the ballot box this Saturday think about how it may affect you now, and in the long term.