Negative Gearing on chopping block

[roe]

On another front; Given that many (most?) baby boomers have very little retirement funds, and hold much of their wealth in their home. Why would the government want to reduce housing prices? They would have to pay more in pensions, in addition to the extra social housing that reduced investors would createwouldn't they?

I would say demographically baby boomers would comprise the majority of the voter base. Additionally they would be the age group most likely to hold an investment property at a guess?

They not reducing house price, they design policy to reduce government expenditure on subside investors....if house price drop as a result of this, then house piece was over price in the first place because this sort of policy distort price and it's not true market value...

If you are a conservative investor you got nothing to worry about, most of your properties will be positive gear and you may be able to pick up more that are +ve gear.

The change of laws or crisis always affect the speculators and the over gear.

No where else this is as clear as day light is the stock market, people think they are genius in bull market and load up debt... Then the tides turn, margin call, price crash they force to sell as they can't meet debt repayment or margin call.

The conservative investors step in buying stuff a fraction of what they was before and so wealth transfer from the speculators to the real investors.

And while we are on pension coming soon they will cap your home price asset
So if you hold multi million dollar house as a PPOR your pension will be reduce accordingly.

So the pension truly go to the people that need most..
Joe Hockey age of entitlement speech, he will implement them and some be will coming in May budget

20 years of housing boom make people forget debt and over leverage but history will tell you nothing goes up forever, there will be a trigger that start the reverse to the mean....no one know when or how, you only find out afterward...doom day predictors are just that, they have 50/50 chance getting it right in the time frame they mentioned but No one knows

Keep yourself in check and don't do anything reckless ...

 

[Trippy]

On another front; Given that many (most?) baby boomers have very little retirement funds, and hold much of their wealth in their home. Why would the government want to reduce housing prices? They would have to pay more in pensions

These retires that own there homes need them to live in. What difference is it to them if the house is worth $500k, $750k or 1 mill? The family residence is currently not counted as an asset for pension calculations.

Or are you suggesting they sell their houses then rent for 20 or 30 years? Isn't rent money dead money?

 

[Doovalacky]

While I wouldn't have an issue with a maximum limit being applied to NG claims all I believe abolishing it will achieve is an upwards pressure on rents.
Investors are going to want even more than now to at least break even.

The have nots are not going to see any difference if the deposit is 40k or 15k when they live paycheck to paycheck without any savings. They are always going to expect it to be handed to them on a platter rather than cut and scrimp until they have the required funds.

First home grants did more to push prices higher than NG ever did. High land costs keep pushing build costs up and established homes stay fairly well in sync with build costs.

 

[Blueberry]

These retires that own there homes need them to live in. What difference is it to them if the house is worth $500k, $750k or 1 mill? The family residence is currently not counted as an asset for pension calculations.

Or are you suggesting they sell their houses then rent for 20 or 30 years? Isn't rent money dead money?

No, but many are downsizing and using profit to live off. Some may be getting reverse mortgages (not that i nessassarily recommend it).

The government is giving incentives in stamp duty reductions to downsize.

 

[hobo-jo]

I believe abolishing it will achieve is an upwards pressure on rents. Investors are going to want even more than now to at least break even.

What investors want really doesn't factor in to the situation, market forces will play out despite their best wishes, I'm sure no Perth investors want falling rents at the moment... (but see attached)

If negative gearing was kept available for new builds it would encourage increased investment into building new homes (larger supply, reducing pressure on rental market).

I agree that FHOG should be removed also (at least for established housing, which has already occurred or is occurring in some states).

 

[Ideo]

In NSW at least the FHOG is only there for new builds. It does not apply for established housing.

 

[truong]

Most property investors buy pre-existing housing, not brand new. They are only increasing the supply if they buy new. All the established homes will still be there regardless of whether an investor buys them or not.

Yes agreed, the total number of dwellings will remain the same but within that number the proportion of owners vs renters will vary, maybe up slightly.

For existing investors there won't be any cashflow disadvantage, however I expect their properties to decrease in value due to being less attractive to other investors if they decide to sell. For this reason there could be a small drop in price initially.

I don't think rents will rise a lot as there will be the same number of dwellings for the same number of people, except in areas where new construction and redevelopment are restricted and therefore investors are less able to create new dwellings. My bet is that rent will increase by just a fraction and this combined with lower prices will result in much better yields.

Improved yields will spur genuine investors into action as CF+ deals become more common, enough to counterbalance the loss of interest that can be expected from investor-speculators.

So overall I think the market will take it in its stride as for most people things will look quite the same as before. The biggest change would come from a better economy through the more productive use of capital, less housing inflation and less social tensions through a rebalancing between younger and older generations, between owners and renters.

Politically this won't cause a revolution either. Even among baby boomers and multi-property owners I've noticed a lot of people concerned about their kids' difficulty in achieving home ownership. I'm one of these people who have changed from being pro-NG to supporting changes to NG as long as they are reasonable.

From the government's point of view I'm not sure it's going to be a vote loser. In fact they may well win votes unless they make a mess of it. And now is such a good time to announce a new policy while people are still focused on the need to repair the budget and interest rates are still super low.

 

[wategos]

Improved yields will spur genuine investors into action as CF+ deals become more common, enough to counterbalance the loss of interest that can be expected from investor-speculators.
.......
From the government's point of view I'm not sure it's going to be a vote loser. In fact they may well win votes unless they make a mess of it. And now is such a good time to announce a new policy while people are still focused on the need to repair the budget and interest rates are still super low.

Excellent summary, I agree totally. The elimination of negative gearing will be good for investors, first home buyers, and the country as a whole. The only losers will be highly leveraged speculators.

 

[Paul@PFI]

I don't think it will happen. They have tried it before and it just didn't work.

Thats not true. Keating overreacted and reverted the laws within just 6 months due to industry pressure. Rents only marginally rose in Sydney. Nowhere else. Lots of annecdotal stories fly around that rents surged. They didnt. Some landlords tried. It wouldnt be hard to impose rules that limit rent rises to counter that sort of behaviour. ie increased funding for tenancy tribunals.

More likely a cause of investor withdrawal from the market at that time was the introduction of capital gains tax on the profit of selling an investment property. This triggered some sales too. Remember that until 1985 if the purpose of the IP was to earn rental income there was no tax on the profit on resale. The good old days !! The CGT factor did squash investor demand and cause rents to rise. The stockmarket crash (1987) that followed saw a massive surge in investor demand in the rush from shares to property. Prices rocketed upwards and rents followed.

 

[skater]

I think its all about supply and demand.

Fewer property investors means fewer rental properties (ie supply down). Renters (demand) will be bidding for fewer rental properties, therefore, us greedy landlords will be rubbing our hands together and jacking up the rent as potential tenants jump all over us, wanting to live in our properties lol

Quoted for reference to below post.

Most property investors buy pre-existing housing, not brand new. They are only increasing the supply if they buy new. All the established homes will still be there regardless of whether an investor buys them or not.

As suggested earlier in the thread, you could remove the ability to negatively gear pre-existing property, only allowing it for new builds (perhaps with a term limit of 5 years for the first owner only), which would encourage investment in new supply.

You've got the supply/demand equation wrong.

Datto was referring to the fact that if you remove NG, less investors will buy. So the supply of rental properties is less. Yes, the established homes will still be there, but over time, less of them will be owned by investors.

Because there will always be a large proportion of people that NEED rental properties to live in, and because many of these people can not afford to live in NEW properties, there will be increased demand for the established homes, putting upward pressure on the rents.

 

[Aaron_C]

Because there will always be a large proportion of people that NEED rental properties to live in, and because many of these people can not afford to live in NEW properties, there will be increased demand for the established homes, putting upward pressure on the rents.

Indeed skater. People tend to forget that for every house that is owner occupied, there is a person who cannot rent that dwelling. This is especially so in the inner-city where lots of young people live - they simply do not have the means/have no interest in buying, so are happy to rent instead. What if all the properties are not owner occupied? We all know that many young people share accommodation with third parties to keep rents down per person - removing supply of rental housing will just cause rents to jump up. Good for me - I got plenty in the inner city.

 

[hobo-jo]

Quoted for reference to below post.

You've got the supply/demand equation wrong.

Datto was referring to the fact that if you remove NG, less investors will buy. So the supply of rental properties is less. Yes, the established homes will still be there, but over time, less of them will be owned by investors.

Because there will always be a large proportion of people that NEED rental properties to live in, and because many of these people can not afford to live in NEW properties, there will be increased demand for the established homes, putting upward pressure on the rents.

No I don't.

In the scenario I foresee you have more investors buying new properties (incentivised by negative gearing benefits, while removed for established properties), this brings an increase in supply to the market.

What you are saying is that all the renters will be fighting over the cheaper established houses (to rent)... but then what happens with all these new properties coming onto the market purchased by investors? Are you suggesting they will just be left empty while investors continue seeking higher rents than the market can handle? Of course not, we would see rents for these new properties discounted until the market could withstand the prices they are asking.

 

[truong]

Hobo and Skater, you may be both right because you're talking about different types of areas.

Skater's talking about stressed rental areas with limited capacity for new builds. Rent may well rise there. In contrast rent may well drop in areas with too much new build and not enough renters willing to move there.

Area differentiation is amplified but on average the overall market is likely to react quite mildly.

 

[hobo-jo]

Fair points truong. There may be pockets where rental demand is high with little room for new development that see an increase in rents, but I'd expect they'd be in the minority. I agree with your conclusion that "on average the overall market is likely to react quite mildly."

Those areas with high rental demand, but little room for development are likely to be inner suburbs & balance may occur in various ways, i.e. prices fall as investors leave, making it more affordable for those renting to buy (turning a renter into owner occupier, so no increase in rental demand despite investors pulling out). Alternatively falling prices (as some investors leave) with stable or increasing rents may bring new investment interest back (for yield, rather than interest in buying to negatively gear) restoring balance.

 

[skater]

No I don't.

In the scenario I foresee you have more investors buying new properties (incentivised by negative gearing benefits, while removed for established properties), this brings an increase in supply to the market.

Ah, but you forget that a lot of investors look for cheaper properties in the more affordable areas. These places are in high demand for renters because they are affordable. The investors who chase these kinds of properties won't suddenly go looking to buy new properties. They buy there because they either can't afford to buy new properties (that won't change) or they are chasing higher returns on their investment (that won't change either).

Then you have the investors who look for innercity properties. These are in high demand also for renters. Again, the investors who chase these properties won't suddenly go looking for new properties either. These investors are chasing CG, more than rental return & there is usally more CG in inner city areas than there is in the new housing estates. This won't change either.

I think overall, you may reduce the amount of investors who buy to 'save tax', as these are often the speculators. These are the ones who WANT to negative gear. Some of them will buy new, and some will just stay out of the market.

 

[hobo-jo]

Some of them will buy new, and some will just stay out of the market.

& those that buy new will add to overall supply.

Those who stay out leave room for prices to fall (&/or rents to rise) until the areas they were buying make sense for yield investors to buy or renters turn to owners.

I really don't think you've made much of a case for why rents have to rise (i.e. at a capital city level).

 

[DealSeeker]

Not April Fools like the earlier thread but potentially negative gearing is going to be scaled back significantly:
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Nah, very confident this will not happen with Abbott/Lib government.
Everyone can sleep well and don't waste time arguing about pros and cons of it , It won't happen, at least not in this year's May budget.

 

[skater]

& those that buy new will add to overall supply.

Those who stay out leave room for prices to fall (&/or rents to rise) until the areas they were buying make sense for yield investors to buy or renters turn to owners.

I really don't think you've made much of a case for why rents have to rise (i.e. at a capital city level).

I think you are grasping at straws here. Aaron has already addressed that. See the below quote.

Indeed skater. People tend to forget that for every house that is owner occupied, there is a person who cannot rent that dwelling. This is especially so in the inner-city where lots of young people live - they simply do not have the means/have no interest in buying, so are happy to rent instead. What if all the properties are not owner occupied? We all know that many young people share accommodation with third parties to keep rents down per person - removing supply of rental housing will just cause rents to jump up. Good for me - I got plenty in the inner city.

 

[hobo-jo]

Inner Melbourne is being flooded with new apartment stock presently & this is set to continue. I think the only one grasping at straws is someone expecting this won't put downward pressure on rents.

Further more you are not making sense as this new stock would be what investors with the ability to continue negatively gearing could continue to buy. You are contradicting yourself and making little sense.

 

[thatbum]

Wouldn't the overall effect be that rental yield start tending towards the current interest rates?

ie. Prices would fall on lower yielding properties, and more demand for higher yielding properties.

I'm speaking very generally, and probably over the long term, since I also believe the effect on the market would be quite mild to begin with.

I think rents might actually increase on higher end properties, since I think there would be a measurable decrease in supply given their traditionally low yield. But otherwise the rest of the rental market will continue as usual.