Industry voices have warned that new tax and super rules are nudging investors towards risky strategies.
The Property Investment Professionals of Australia (PIPA) and Momentum Media director Phil Tarrant have warned that the federal government’s recent tax and superannuation changes are driving investors towards higher‑risk plays.
PIPA chair Cate Bakos said the new negative gearing and capital gains tax (CGT) rules had changed where interest was concentrated, with money beginning to chase segments that produced stronger immediate income, even when they sat outside traditional areas.
She said the property taxation reforms “were likely to trigger a surge of interest in regional locations, small units and apartments, challenging title types, commercial assets, and other cash flow–focused investments”.
Bakos said that in a world of reduced tax offsets, income reliability had become a powerful drawcard.
“Positive cash flow may appear more valuable now that first-time investors no longer have access to negative gearing tax offsets unless they purchase brand-new property,” Bakos said.
“It helps service debt, provides resilience against rising interest rates, and offers liquidity.”
Cash flow v capital growth: A shifting balance
However, Bakos’ central message is that an overcorrection towards yield risks undermining long‑term outcomes.
“But cash flow alone does not build wealth, because capital growth remains the cornerstone of successful property investment over the long-term,” she said.
Bakos also said that the reforms had created a more intricate environment, where strategies were becoming more complex and product sets broader.
She said the changed settings “had created a more complex landscape, where some inexperienced advisers may start recommending asset classes outside their expertise”.
To guard against that, she urged investors to test the depth of their advisers’ experience.
“Consumers must ask their advisers for their experience in recommending regional or commercial assets,” she said.
“Do they understand the growth fundamentals of these markets, or are they simply chasing yield?
“Without proven expertise, investors could be steered into properties that look good on paper but fail to deliver capital appreciation.”
Bakos further said that periods of policy change tended to attract promoters who pushed the boundaries of risk.
“Spruikers often emerge in times of policy change, promoting properties that may not withstand professional scrutiny,” she said.
She said that some of the stock being touted carried structural issues that lenders would not ignore.
“A portion of these higher risk properties may include internal floor areas that fall short of lending policy, or unusual title types that may require a significantly higher deposit than traditional residential options,” she said.
SMSF borrowing cut-off fuels deadline‑driven decisions
Alongside the tax changes, Tarrant said the ban on new residential borrowing in SMSFs, which is due to commence on 10 August, was prompting a wave of deadline-driven messaging from buyer’s agents urging clients to act.
“My inbox is full of it, with buyer’s agents telling customers and clients, hurry up, buy property inside your superannuation fund before the cut-off,” he said.
“It may be right for some people, probably wrong for a lot of people.”
Tarrant’s concern is that the existence of a hard date is being treated as a reason to transact in itself, rather than as a prompt to reassess strategy carefully.
“Just because there is a deadline now about investing in residential property inside of your super fund doesn’t necessarily mean you should be doing it,” he said.
“There’s a lot of buyer’s agents out there pushing this hard, trying to fill their coffers, if that is right for you and that is the right strategy, you’ve got the right advice, but don’t make those wrong decisions.”
Lending standards and the risk of being trapped in poor assets
Tarrant also said that brokers were working under intense time pressure to meet demand and that lenders may be relaxing their usual approach to asset quality.
“Brokers are very busy trying to fulfil these lending requirements and lenders probably being a little bit looser than what they normally are in terms of looking at the value of assets,” he said.
Looking beyond the cut-off, Tarrant said that the borrowing landscape inside SMSFs would look very different once new residential loans are no longer being written.
“You need to remember, if you are investing in residential property in SMSFs and you can’t do it moving forward, there’s a good chance that you’re going to get a lot less competition for your borrowing inside of your self-managed super fund,” he said.
He highlighted how loan pricing and refinancing options could become more challenging, particularly for “inferior” assets.
“You are likely to have rates inside your super fund increasing outside of lockstep with any changes of Reserve Bank of Australia and if you’re buying poor or inferior assets inside of your super fund, you may not be able to do refinancing or those valuations may not stack up,” he said.
[Related: FHB pullback almost as steep as investor retreat]
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