What do the changes to property investment regulations mean for rent roll valuations?

The Federal Government proposed major changes to negative gearing and capital gains tax in the May budget which will inevitably change investor behaviour. 

As the owner of a rent roll or property management agency, now’s the time to think about the potential effects of these changes and how to adapt to conditions as they evolve. 

It’s not possible to forecast the outcome of this change with complete accuracy, but the following can help you understand what makes your rent roll valuable, and make a plan for the future: 

Rents are likely to rise, and this is not entirely bad news

Current proposals indicate negative gearing will be ‘grandfathered’ for existing investors, so they won’t notice an immediate change. However, future investors will face higher holding costs because they won’t be able to claim an income reduction on their annual tax return. 

The likely outcome of this is higher rents, with reports saying rent could increase by 2.4% by 2029-30. 

For real estate proprietors, rising rents have a direct and positive effect on rent roll value. Most rent rolls are valued on a multiple of the annual management fee income they generate, which is calculated as a percentage of the rent collected. Higher rents mean higher gross fees, which flows through to a more valuable rent roll. 

New property purchases create a window for growth

Negative gearing and capital gains tax reform could shift investor behaviour toward newly built properties, which are widely expected to retain concessional tax treatment under most of the proposals in the Federal Budget. 

It’s likely investors who would previously have purchased established homes may pivot toward off-the-plan apartments, townhouses and house-and-land packages. This could also lead to a jump in the ‘car economy’, with renters leasing new homes on the outskirts of metropolitan areas and driving to work. 

Australia may also see a rise in SMSF investing; many advertisers are already highlighting it as a potential strategy to sidestep the fallout from the budget. 

As the evolution away from property investing as we have known it for the last two decades sets in, property management businesses which have strong partnerships with developers, investment loan brokers, SMSF brokers and selling agents may find themselves with a competitive advantage and a steady flow of ‘lease-ready’ leads. 

Brand-new PUMs tend to have lower maintenance demands in the early years and, in many cases, slightly higher rents than comparable established stock. Both factors improve the quality and value of a rent roll, so this is another opportunity for growth. 

If you want to continue building a valuable rent roll, now is the time to do the groundwork and establish relationships with industry contacts who are bringing quality new homes to investors. 

Build-to-rent opens a new frontier

Anyone looking for a big reaction at the moment is pointing to the death of property investing and the further collapse of Australia’s rental market… but people have a way of adapting and finding new ways to grow their wealth. 

Build-to-rent is another growing area to explore, particularly in Melbourne. This long-term rental income model involves leasing apartments permanently, shifting focus from individual property owners to entire buildings owned and managed by a single company. 

For established property management businesses with solid processes, a clear reporting framework and the ability to manage volume, securing a management agreement with a major build-to-rent developer could be transformative: a single development can see 200 to 400 apartments managed under one agreement, adding significant value to a rent roll and making it easier to sell when the time comes. 

Buy or sell?

The Federal Budget was only handed down a few weeks ago, but reports are already saying the investment property pool is getting shallower. In Melbourne, for example, 642 rental homes were reportedly lost to the market in May. 

As a rent roll owner, the path to secure individual PUMs in the current conditions can be a long one. If you’re currently at a crossroads and not sure how to move forward, now could be a good time to get your existing asset valued. You can use the final figure to decide on your next steps, whether you wish to continue your current growth strategy, purchase a roll and expand your footprint with less effort, or sell to an agency looking to expand. 

Understand the value of your rent roll. Reach out to BDH Valuers today.

FAQ’s

• Will the proposed negative gearing changes affect my rent roll right away?

  Not immediately. Existing investors are likely to be "grandfathered" under current proposals, so the biggest impact will be on future investor behaviour and, over time, rising rents, which directly boosts rent roll value since fees are based on a percentage of rent collected.

• Should I focus on established homes or new properties for growth?

  With new builds likely retaining favourable tax treatment, investors may shift toward off-the-plan apartments, townhouses and house-and-land packages. Also consider properties that tend to have lower maintenance demands and higher rents, making them valuable additions to a rent roll.

• Is build-to-rent worth exploring for my property management business?

  Yes, especially for agencies with strong systems and reporting. A single build-to-rent agreement can bring 200–400 apartments under one contract, offering a significant, efficient boost to rent roll value and cash-flow.