The government of Australia has developed a new strategy that is expected to redirect investor capital directly into new development projects that has construction firms in development intense regions such as Geelong and Melbourne mulling over the negative aspects of the strategy.
Negative gearing has left commercial and even civil construction firms in a conundrum due to the expected crippling effects that will stem from it into the already pressured construction sphere attributed to high interest rates and continuously increasing construction costs on big projects.
Most construction outfits are disturbed about the pre-sale volatility that is like to take place as investors reverse their decisions on borrowing to buy due to the fact that buyers who intend to resell will not be able to negatively gear the asset.
Apart from that, there is also the issue of valuation based on the arguments presented by developers on the matter of restricted tax breaks which would pinch secondary market value and render the entry-level financing even more difficult than it already is.
Another threat that is being overlooked by the government is the regional imbalance that would stem from the move.
Both civil and commercial construction costs in hubs such as Geelong are in fact disproportionately higher than other regions such as Melbourne mainly for skilled labour which will inevitably provide even more reason for investors to flee.
For example, even projects that have been structured around heritage in order to better position these builds for local owners, the financial viability of the project comes into question simply due to the fact that it will be almost entirely dependent on pre-sales to kick-off. With budgets under this kind of pressure, some smaller developers are turning to mini excavator rental in Geelong as a more cost-effective way to manage site works without straining already tight project finances.
Nevertheless, policymakers remain steadfast about the move as they firmly believe that negative gearing will ultimately stabilize property prices and will be an advantage for first-home buyers.
In essence, the anxiousness that has been floating about within the commercial sector in places such as Geelong due to the sudden tax shift is expected to create a housing supply bottleneck which would counter their expectations.
Even the sphere of civil infrastructure throughout Victoria will eventually feel the spill-over effect of negative gearing which will undoubtedly impact growing regions as they enter the delivery phase.
From road and rail overhauls to civic construction projects meant to support projected population growth would eventually be stifled to an extent that is yet to be known. Geelong is undoubtedly among the fastest growing regions after Melbourne and investments are critical to both the commercial and infrastructural development of the area.
How investors will approach the negative gearing is still pretty much up in the air according to developers who have become as cautious as they were during the pandemic five years ago. In essence, due to the negative gearing strategy, the sphere of the construction industry has become uncertain for the most part and stabilisation will only present itself once the kinks are ironed out which will take time. What happens between now and until that time arrives is the question that begs answers.