Negative Gearing on chopping block

Discussion in 'Accounting and Tax' started by kamchatsky, 4th Apr, 2014.

  1. see_change

    see_change Apprentice Timing Lord

    Joined:
    26th Apr, 2001
    Messages:
    6,379
    Media:
    43
    Location:
    location
    I haven't seen too many people on this forum advocating inner city properties , ( in fact quite the opposite ) apart from a couple of people who obviously know that market well and the pitfalls involved

    Maybe you should pay more attention to what people say here rather than staring into your charts looking for answers . But then again you do seem to ignore some of the answers that get given too you when you can't find a chart to back up your thoughts .....:rolleyes:

    Cliff
     
  2. Shadow

    Shadow Evil Specufestor

    Joined:
    8th Jun, 2007
    Messages:
    1,639
    Location:
    Sydney
    Rents rose strongly in all cities during the two years when negative gearing was quarantined. Rents rose 25% nationally during the quarantine period.

    Rents were rising strongly anyway, before and after the quarantine period, so I'm not saying NG was the cause of the rent rises, but it is false to claim rents didn't go up.

    The media commentators who falsely claim rents didn't rise have subtracted CPI inflation from the nominal rent increase.

    Inflation was very strong during that period, but it doesn't make sense to subtract CPI from the rent rise and therefore pretend rents didn't really go up.

    Rents are included in CPI, so the strong CPI inflation was partly caused by the strong rent rises.

    Try telling a tenant who has just suffered a 25% rent rise that the rise didn't really happen because some other basket of goods also got more expensive.

    The actual nominal increases (from the ABS CPI Rents Index) are shown below.

    [​IMG]

    [​IMG]
     
  3. Ed Barton

    Ed Barton Advance Australia fair

    Joined:
    3rd Jul, 2010
    Messages:
    2,560
    Location:
    Brisneyland
    Actually it was removed for more like two years before it was reintroduced.

    But with grandfathering I agree, it's too short a period to say it's effect on rents or house prices. Especially with CGT introduction and stock market crash.
     
  4. skater

    skater Capitalist

    Joined:
    8th Nov, 2003
    Messages:
    9,220
    Media:
    1
    Location:
    Sydney
    Precisely!

    AND tenants who go looking for NEW properties to rent are completely different to tenants that look for ESTABLISHED properties. This won't change. There will always be people on low incomes that want/need to rent the cheapest properties available.

    AND YOU CAN BET YOUR BOTTOM DOLLAR, THAT NO MATTER WHAT HAPPENS IN THE MARKET, THE NEW PROPERTIES WON'T BE THE CHEAPEST OPTION.
     
  5. chilliblue

    chilliblue Member

    Joined:
    29th Jul, 2010
    Messages:
    1,685
    Location:
    AUstralia
    Has any organisation looked at taxing property owners for dwellings that are not inhabited (say for 2+ years).

    There would be significant properties where the owner for one reason or another (i.e in a nursing home, overseas, does not want the fuss of tenants, waiting for a development etc) who would have a property that is not being occupied.

    I know that certain areas would have higher rates than other, but pushing people to have their properties occupied would assist in the shortfall of rentals and only penalise those who are not using their dwellings for their intended use.
     
  6. hobo-jo

    hobo-jo Not a bear just a realist

    Joined:
    19th Nov, 2006
    Messages:
    3,024
    Location:
    Adelaide
    Once again you have stepped into the middle of a conversation and missed the point.

    skater was trying to explain why rents would rise with negative gearing removed from established property (which she still hasn't achieved as far as I'm concerned). She quoted Aaron_C's post on inner city rents, my post was simply an extension of that, pointing out that the current boom in Melbourne apartments would put downward pressure on rents & that in the situation I described, negative gearing would still be available for them anyway, making both their points moot.

    I was not advocating inner city property, maybe you should pay more attention.

    I am a renter with an upcoming lease renewal & reviewing what else is out there, I won't be narrowing my searches to established or new, I will simply be looking within a price range (which could easily incorporate both property types).
     
  7. Ed Barton

    Ed Barton Advance Australia fair

    Joined:
    3rd Jul, 2010
    Messages:
    2,560
    Location:
    Brisneyland
    Only because older properties tend to be crappier, more supply and therefore cheaper. If negative gearing changes to allow it only on new properties the supply could change.

    No need to shout.

    If NGing was limited to new properties it could create an oversupply of new properties compared to the status quo. Those new properties (and any established alternative) would drop in rental price.

    The average SS member is miles away from the average Australian property investor.
     
  8. skater

    skater Capitalist

    Joined:
    8th Nov, 2003
    Messages:
    9,220
    Media:
    1
    Location:
    Sydney
    No, you are the one that has missed the point.

    Once again, this is what I said:

    Whether you are looking for a rental property to live in, or a property to purchase, new will, in most cases cost subtantially more than established. There is, and always will be, a number of people who will never be able to afford to live in a new home, in the area they want to live. They have no option, other than to rent an established home. Less investors owning established homes WILL put upward pressure on the rent and it may make the gap between new & established a lot smaller, but there will always be a gap.
     
  9. HiEquity

    HiEquity Member

    Joined:
    18th May, 2008
    Messages:
    3,178
    Location:
    Australia
    Let us just remember this is a zero sum game.

    Same number of properties overall.

    On the sales front, if you remove negative gearing there will be fewer investors looking to purchase and some investors looking to sell. Less demand to buy, more supply to sell = prices drop. As prices drop, there will be people who are currently renting who will step up and buy to take advantage, moderating whatever drop occurs. But they will be buying at lower prices than otherwise the case.

    On the rental front, as some investors sell, there will be fewer properties available to rent, serving to increase rents. As some renters will be able to buy there own place, this will moderate the impact but rents will rise regardless because most renters still won't be able to buy because of other reasons - no job / lack of finance / no deposit etc etc. There will be less supply to the rental market but demand won't reduce to the same extent - so rents have to rise.

    It's a zero sum game - push down on the bubble and it pops up somewhere else. Negative gearing distorts the market to make properties more expensive to buy but cheaper to rent. If you are primarily concerned about affordable housing for the most vulnerable in society then a policy that supports low rents must take precedence over one that reduces house prices.

    BTW, there is no chance of this changing in the current budget, so why are we talking about it?
     
  10. see_change

    see_change Apprentice Timing Lord

    Joined:
    26th Apr, 2001
    Messages:
    6,379
    Media:
    43
    Location:
    location
    I was paying attention :rolleyes:, but if you think I wasn't and if you wanting to score more debating points...... Feel free , though I won't concede that one . If you want to be pedantic ( which you seem to like to be ) my first post on this thread came early on in the second page ( before yours ) so I came in before the middle of the conversation , but that's being pretty petty isn't it , but if we're into debating points and being pedantic I'll take that one ...:eek::rolleyes::cool:

    My point of responding was to point the relevance to real life scenarios that are played out on a regular basis on this forum. I don't see how that is missing the point . I was trying to draw your attention to the real world application of the charts you like to bring up . BTW i do like charts .

    Check this out

    http://somersoft.com/forums/showthread.php?t=11656&highlight=Rocky

    ( sorry sim ......)

    A renter . Any IP's ?

    Cliff
     
  11. skater

    skater Capitalist

    Joined:
    8th Nov, 2003
    Messages:
    9,220
    Media:
    1
    Location:
    Sydney
    Yes, slowly, you will get more owner occupiers, but there will always be rentals in the established homes.

    Clearly there is! I've repeated myself several times & Hobo just keeps going on & on, and showing stupid graphs.

    I'm bored with this conversation, and can't be bothered with any more responses, so go for it Hobo. Explain how you are right & none of us know anything. Yawn!

    Oh, & for the record, I couldn't care less if there's neg gearing or not. It won't change what I buy one iota.
     
  12. perthguy

    perthguy Member

    Joined:
    7th Jan, 2014
    Messages:
    1,869
    Location:
    Perth
    Wouldn't the capital gains tax discount distort the market to a much greater extent than negative gearing? NG supposedly costs the tax system $2-$4 billion per annum. NGers lost $13 billion last year. Whereas the capital gains tax discount (100% for main residence and 50% for investors) cost over $30 billion.

    Supposedly NG and the CTG discount distort the market by diverting money to resi real estate that could be invested in shares and managed funds.

    I wonder which is more responsible for the higher resi real estate prices: NG, 50% CGT discount for investors or CGT exemption for owner occupiers?
     
  13. HiEquity

    HiEquity Member

    Joined:
    18th May, 2008
    Messages:
    3,178
    Location:
    Australia
    While you're at it you can add stamp duty and land tax to the list. Although of all of them I find land tax the least offensive.
     
  14. perthguy

    perthguy Member

    Joined:
    7th Jan, 2014
    Messages:
    1,869
    Location:
    Perth
    I also think that for most invidual investors, the CGT discount is going to be worth a lot more in dollar terms than NG.

    If I bought a $500,000 house on a 105% loan @ 5% = $26,250 interest per annum. Rates, water rates, insurance etc would be around $5k per year, bumping the cost to around $31,250. I think this is about right for mine.

    Now I rent out the property for $400 per week = $20,800. So this is roughly $10k per year for 10 years = $100k in tax deductions.

    Of course in those 10 years my property value will have doubled ;)

    So, I sell for $1 millon = a nominal $500k 'profit'. Discount that by 50% and there is $250k tax free. Much more more than the $100k in tax deductions.

    Of course a property should not remain NG for 10 years or it wasn't a very good investment.
     
  15. perthguy

    perthguy Member

    Joined:
    7th Jan, 2014
    Messages:
    1,869
    Location:
    Perth
    Land tax in WA seems relatively cheap. Stamp duty on the other hand... :mad:
     
  16. impala67

    impala67 Member

    Joined:
    15th Jul, 2009
    Messages:
    879
    Location:
    Melbourne
    :p

    +1.
     
  17. bumskins

    bumskins Member

    Joined:
    5th Nov, 2010
    Messages:
    112
    Location:
    NSW
    There will always be a buyer "at a price".
    That means if there's a fall in demand for investment properties, then the value will drop to meet demand.

    Negative Gearing just means people are willing to overpay knowing the government will shoulder some of the pain.

    Without NG I think investors will demand higher yields when buying, this means offering less upfront.
     
  18. skater

    skater Capitalist

    Joined:
    8th Nov, 2003
    Messages:
    9,220
    Media:
    1
    Location:
    Sydney
    No, investors will buy at market price, so long as the property makes sense to them. We all have different criterior. Something I wouldn't touch, someone else will see a great investment, and vice versa.

    I believe it will stop a lot of the newbie investors/speculators that get in because their accountant told them it was a good way to save tax. So a softening of the amount of investors buying in places with very low yields.

    A lot of investors already do that. There's lots of places with high yeilds, you just won't find them 15km from the city.
     
  19. depreciator

    depreciator Member

    Joined:
    17th Dec, 2004
    Messages:
    4,462
    Location:
    Sydney, NSW
    Yep, that's why it would take a brave government to do anything to NG or CGT. It wouldn't just be the value of rental properties that would drop, it would be the value of all (well, most) property when demand dries up. So even people who just own their own home outright and live in it and have no intention of selling would see the value of their home drop. Obviously if all property loses value, the loss in value of a person's home isn't very relevant - except to them. People who have no intention of selling love to think their asset is going up in value - they would pour over those tables the Sunday newspapers put out a couple of times a year. Any government that does something to cause the value of people's homes to drop will have a fight on their hands come the next election.
    It's an interesting disconnect. I was talking to a bloke at tennis last night who was complaining that his layabout son couldn't afford a house in the area he wanted to live in and reckoned 'something has to be done'. I asked him whether he was he prepared, for the sake of his layabout son, for his own house to lose value.
     
  20. wylie

    wylie Member

    Joined:
    29th Apr, 2005
    Messages:
    12,682
    Media:
    238
    Location:
    Brisbane Queensland
    I was hoping you would have gone on to say this man has realised that he needs to suggest to his layabout son that he wakes up to himself, and to get a job, but instead it seems this man thinks the government should make changes so his son can continue to live the layabout lifestyle and also be able to afford a house in the area he wants to live in :eek:.

    Did this father really agree with his son that it is the government that needs to make changes over perhaps, just perhaps, his son make some changes?

    No wonder things are like they are. (You should have slapped him, and asked him to pass it on to his son :D.)