I do love the witty posts with those clever sneaky words that ever so gently have a dig at many of the people on this forum.often true posts i admit but it reminds me of the wordsmith we have at work. Smart fella and very switched on but i have to remind him occasionally to shut his mouth and finish sweeping the hangar.
Is it the end of negative gearing
- Thread starter Dan_p
- Start date
I had a similar observation about people incapable of simply saying what they mean but I don't want to sound "sneaky".
I wasn't meaning to take a dig at anyone, but rather it strikes me that investors are optimistic on the returns that they'll get. (And there's academic research to back this up.)
We live in an era of relatively low growth, inflation and wage increases. For most Western countries if they're around the 3% to 4% mark then all is well. As such, I'd expect asset classes in general to move at that sort of rate, and I get suspicious if things show faster growth rates, particularly if the associated income hasn't changed.
Now someone who's buying a poorly yielding (negatively geared) property is taking a bet that the capital gains will more than make up for any shortfall. If you've bought a place yielding 3% or 4% against 6% or 7% interest rates plus a couple of percent in other costs, you're taking a bet that over the medium term the property's price is going to rise in excess of inflation or wages.
Given that long term studies of the housing market have shown that historically prices move in line with wages, I'm not convinced that's a good bet to take, particularly when Australia is expensive in international comparisons.
The trouble is that a lot of people are looking at it from the point of view that house prices have doubled or trebled in the last decade, so the belief is that history will repeat itself, and they'll be rich. I think that this is a mistake based on a short rather than long term historical view, and that the assumptions guiding the investment decision are poor.
Losing money on a bad bet isn't clever, so like I said, they're suckers.
It's entirely possible that my assessment is wrong, and that the market will move against me. (It's got a habit of doing the whole irrational longer than you can stay solvent thing.)
We live in an era of relatively low growth, inflation and wage increases. For most Western countries if they're around the 3% to 4% mark then all is well. As such, I'd expect asset classes in general to move at that sort of rate, and I get suspicious if things show faster growth rates, particularly if the associated income hasn't changed.
Now someone who's buying a poorly yielding (negatively geared) property is taking a bet that the capital gains will more than make up for any shortfall. If you've bought a place yielding 3% or 4% against 6% or 7% interest rates plus a couple of percent in other costs, you're taking a bet that over the medium term the property's price is going to rise in excess of inflation or wages.
Given that long term studies of the housing market have shown that historically prices move in line with wages, I'm not convinced that's a good bet to take, particularly when Australia is expensive in international comparisons.
The trouble is that a lot of people are looking at it from the point of view that house prices have doubled or trebled in the last decade, so the belief is that history will repeat itself, and they'll be rich. I think that this is a mistake based on a short rather than long term historical view, and that the assumptions guiding the investment decision are poor.
Losing money on a bad bet isn't clever, so like I said, they're suckers.
It's entirely possible that my assessment is wrong, and that the market will move against me. (It's got a habit of doing the whole irrational longer than you can stay solvent thing.)
Perfectly sound reasoning, Graemsay.
The historical fact though is that around 2 out of 3 property investors in Aust have NG properties.
If CG prospects going forward are poor as you say, then these PIs don't stand to make much on their investment at all. Indeed, you could even say they are subsidising renters.
If that is so, then removing NG tax benefits wouldn't be very good for renters, would it?
This is why I think that calls to remove (or limit) NG are a bit nutty.
The historical fact though is that around 2 out of 3 property investors in Aust have NG properties.
If CG prospects going forward are poor as you say, then these PIs don't stand to make much on their investment at all. Indeed, you could even say they are subsidising renters.
If that is so, then removing NG tax benefits wouldn't be very good for renters, would it?
This is why I think that calls to remove (or limit) NG are a bit nutty.
Depends what your net holding cost after tax is balanced against debt deflation and capital growth... is hard to see how you can lose except in a dire deflationary situation. If your cashflow can support it I would suggest leveragign to the max. From that I can't see how many of them are suckers - either by design or pure luck.
their are several people contributing to renters' love nests. A major one is bank depositors, then taxpayers along with the asset holder
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