Do you support negative gearing?

[Belu]

It looks like negative gearing has had a decent slice of time at the tax summit over the last few days.

I don't think anyone will argue that it has a large impact on both prices and rent rates - but my question is do you think it is a good thing or a bad thing?

My investment strategy was initially buy & hold and use negative gearing in the short term to assist with serviceability. Over the last few years I have concentrated more on equity generation rather than waiting for appreciation - and as such I don't really rely on these tax breaks.

As a general rule of thumb I don't think that one asset class should have preferential treatment of another. They should be weighed up on fundamentals and potentials and directly comparable. As such I think that negative gearing should be phased out.

Should it be done in one big swipe? No. But a decrease of it over time, or a grandfathering and removal would go a long way. Grandfathering would mean investors with negative geared properties wouldn't then flood them on the market and push rents straight up. It would mean prices of stock on the market would probably have downward pressure, and whichever way you look at it (i.e. pricing going down or rents going up), rental yields would need to increase.

Will this hurt people? Yes (and disproportionately to the people on this forum). Will this help people? Yes - and more people than it hurts. $4.5b a year in negative gearing benefits is $300-400/year per taxpayer, which is the equivalent of negative gearing ~$1k each. The hope is that this benefit would flow back as well so it isn't all bad for the negative gearer.

Over the medium - long term I think this would be positive on the housing affordability/housing market. So I say do it - one way or the other.

What are your thoughts?

Ben

 

[willair]

Should it be done in one big swipe? No. But a decrease of it over time, or a grandfathering and removal would go a long way. Grandfathering would mean investors with negative geared properties wouldn't then flood them on the market and push rents straight up. It would mean prices of stock on the market would probably have downward pressure, and whichever way you look at it (i.e. pricing going down or rents going up), rental yields would need to increase.

Gillard Bobby Brown,and the rest would not be that stupid,the last time they did this it went the other way,i still think the next cab off the rank will be tax on the PPOR,not much left that you don't pay tax on..

 

[kathryn d]

In Canada we are not permitted negative gearing, as a long term strategy.It is expected for a short time, but if too long, and it is not considered a business, but more of a hobby.This was told to us when we were audited a couple years back.
There are other rules, about being permitted to carry forward deductions to use in future years, if needed.

In Australia, I would think if NG was abolished, rentals will become more scarce, because some LL will need to sell.Of course this will cause a "vicious circle". Prices will need to drop, because new investors will not purchase. Most properties are bought by homeowners. Maybe this will push prices down enough to make buying a house attractive to renters? When the prices are down enough to make properties CF+, investors will start buying again.

In the long run, I think it will be better for investors interested in living off rent.

 

[pieman]

Support?
For shares or property?

 

[Aaron_C]

Yes I support it.

 

[devank]

less investors = less transactions = less stamp duty + less CGT = less money for the gov!

 

[Aaron_C]

less investors = less transactions = less stamp duty + less CGT = less money for the gov!

Which is why they introduced the carbon tax - or maybe ths carbon tax is the first step to removing negative gearing???

 

[w0nnie]

one thing not being included in the numbers being thrown around is the effect negative gearing has on properties at the lower end of the market that previously were being picked up by public housing.

Whilst lowering house prices will help those in a position to purchase, there are plenty, who whilst paying rent that would be the equivalent to a mortgage, will never actually get a mortgage from a bank...these people will end up paying more for rent as they have no opportunity to buy.

Will these people then be forced into public housing and thus increasing government costs, negating savings made from negative gearing changes?

 

[Propertunity]

In Canada we are not permitted negative gearing, as a long term strategy.

This is exactly the same here in Australia. Negative gearing is only allowed for a time, as long as there is the reasonable expectation that the enterprise will turn a profit sometime in the future.

The bottom line is, that an IP that is neg. geared now, will ultimately turn cf+ if held for a number of years. Then tax is paid on the income that exceeds the expenses, or CGT is paid on the sale of the asset.

The govt. has shown that it is cheaper for private LL's to provide housing than it is for itself to do so - hence the NRAS, sell off of housing comm. stock etc.

If the govt. had to go back to supplying housing again, the $4.5Bn of neg. gearing losses would pale by comparision to the real cost of housing provision.

Add to this, that it has been done before in the Hawke/Keating years and subsequently re-instated and made retrospective for the time it was removed, I think there is little chance of neg gearing being removed (with the caveat, that I would not be surprised by anything this govt. does )

The tax summit was just a talk-fest to satisfy Indepedant RO - it was never designed to actually achieve anything.

 

[josko]

Hi Belu,

Paul Keating tried to do this in the 80's. For whatever reason, soaring rents and lack of supply...it was brought back for an obvious reason.
Proportunity touched on the issue.

No matter what the reason, if investors stop buyinig houses...there will be nowhere for those that cannot afford to buy..to rent.

Investors are "useful" to the Government. While we may get Negative Gearing as incentive....we still have to pay Stamp Duty at an entry level and Capital Gains at an exit level before retirement.

As far as the advantage for investors...it depends on your income as to exactly how much you can claim back, as you well know....so the advantage can be minor.

The average person with one or at the most, two investment properties....are the majority in the investment housing market. While you may think that the supposed preferential treatment is unjust.....think of how much money these people save The Government and therefore the taxpayer-for the cost of housing.

Regards JO

 

[vaughan]

No matter what the reason, if investors stop buyinig houses...there will be nowhere for those that cannot afford to buy..to rent.

Sorry to sound pedantic, but that's not quite the causal link.

People buy houses. Owner-occupiers live in them as their PPOR. Investors rent the houses out to other people (and hope to make money).

So the issue is whether the home owners stop renting them out.

 

[Mry]

As to the view that the temporary removal of negative gearing caused rents to rise, its worth noting that Saul Eslake noted that rent only increased in 2 capital cities, not all of them, and they were preceeded by very low vacancy rates. If the removal of negative gearing increased rents, they should have increased everywhere.

http://www.abc.net.au/lateline/content/2003/s991144.htm
http://en.wikipedia.org/wiki/Negative_gearing_(Australia)

I would be in support of any measure that improves housing availability so that my kids can afford a house by their own efforts but I don't know how changes to negative gearing would affect that.

I do know that there has always been talk of getting rid of it, but nothing has eventuated. Negative gearing would be a dangerous thing to play with both politically, economically and financially.

Recently I watched a US PBS series on Prohibition. When it was introduced in the 1920s, it was said of the proponents that "they expected sales of clothing and household goods to skyrocket. Real estate developers and landlords expected rents to rise as saloons closed and neighborhoods improved. Chewing gum, grape juice, and soft drink companies all expected growth. Theater producers expected new crowds as Americans looked for new ways to entertain themselves without alcohol. None of it came to pass." In a similar way, I don't think much thought has been put into what would happen if negative gearing was removed, theres only talk about what it does now. That's not a good basis for policy decisions.

Besides if they got rid of negative gearing for properties, people would buy them in unit trust and claim a loss against the trust income. They would have to outlaw losses against a variety of activities, not just property, to make it work.

 

[Datasphere]

Negative gearing!

One thing that seems always overlooked, is that for most dollars claimed as a deduction, there will likely be an Australian bank accounting for those dollars as income.

Also NG does not exist in USA, but they still had a housing boom.

The biggest factor in housing price increases (worldwide) is access to credit!
So abolishing NG in isolation won't increase the supply of "affordable" housing.

 

[Player]

One thing that seems always overlooked, is that for most dollars claimed as a deduction, there will likely be an Australian bank accounting for those dollars as income.

Also NG does not exist in USA, but they still had a housing boom.

They can, however, tax deduct the interest on their PPOR, thereby leading to higher and higher aspirations and the availability of easy credit, NINJA loans, etc. THis leads to the bigger and better trophy home pursuit

The biggest factor in housing price increases (worldwide) is access to credit!
So abolishing NG in isolation won't increase the supply of "affordable" housing.

The investor for the most part, runs an administrative and relatively fiscally efficient housing provision service for the government to not have to concern themselves with.

 

[The Fence]

The investor for the most part, runs an administrative and relatively fiscally efficient housing provision service for the government to not have to concern themselves with.

So simply well put it should be gilded in GOLD...!

Kudos Player!!

 

[knightm]

Currently support it (while i have a paye wage to offset) in the long run dont care. Want to have +cf portfolio and live on this and cg events etc.

I believe if ng removed the people who are most effected is the high wage earners who buy investment properties. Last i heard 98 percent of investors own 1 or 2 properties. Many of these people MAY leave the market or may not but they would notice the cf difference most.

Those with largest portfolios and most active property involvement will find structures and ways to turn a dollars regardless and over time i think higher rents would be a natural adjustment in response to removal of ng.

right now I would be more upset if the 50% reduction in cg is removed as i like this generous rule and it has saved me a lot of money lately.

 

[agent007]

I believe if ng removed the people who are most effected is the high wage earners who buy investment properties.

Last time ng was removed the most affected were the so called "Australian battler" when in less than 12 months rents increased by 60%.

 

[Belu]

60% in 12 months? Sounds hard to believe. do you have proof please?

 

[agent007]

As a general rule of thumb I don't think that one asset class should have preferential treatment of another.
Ben

What make you think that ng is the exclusivity of direct resi property investment?. It applies to any investment and the rational for it is that any commercial activity will turn positive over time or otherwise it will end. You can invest in shares and use ng too.

If you look only at property, you will notice that the same principle applies to it. The only way a portfolio of properties will be ng in perpetuity is if it continually growth in numbers. Otherwise, in a matter of 5 years or so (depending on the type of properties, inflation, GDP, etc), it will turn positive and income tax would have to be paid.

 

[agent007]

60% in 12 months? Sounds hard to believe. do you have proof please?

mate google it. The information is public. That's the main reason ng was put back in a rush