Negative Gearing

Not all property investors support negative gearing. I think it is a stupid tax policy, and I've been slightly negatively geared for most of the last 21 years. It pushes up prices, encourages speculation, increases the countries debt, reduces investment in productive industries and robs thousands of younger home buyers of their own home in favour of highly leveraged investors (/speculators). No other country does it.

It would be a brave person that takes the interview. All arguments in favour of negative gearing can easily be demolished, and ABC know what they are talking about here:
http://www.abc.net.au/news/2015-05-06/hockey-negative-gearing/6431100

The only possible support I would have for it continuing would be for new developments (less than 10% of investor purchases). In other cases annual losses could be carried forward and applied to future income or sales.

Unfortunate it is also going to take a brave government to tackle it. The current government is not up to the task, treasurer Hockey himself repeats some of the fallacies.
http://www.macrobusiness.com.au/2015/04/joe-hockey-flat-lies-negative-gearing/
Most politicians have substantial property portfolios, and they also want to appeal to the investors that want to maintain negative gearing. They do not have Australias interests at heart. But there are rumblings and ideas within the Labor party, and the media and other groups are keeping the issue on the agenda, so hopefully we will eventually see some action.
 
Negative gearing tax concessions are only one part of the story.

With stamp duty , land tax and capital gains I'd say that in most instances the property pays its fair share of taxes.

I know that is the case with our Sydney properties.

NG being focused on in isolation, is not accurate. All investors (positive or negative) take on a partner when purchasing a property - our friendly government in the form of CGT.

If the cost of servicing real debt taken away, over time with inflation does the government continue to reap the actual windfall on disposal of asset?

So in all reality, most people borrow money for the first tax, ie stamp duty. Pay land tax, council rates. Needless to say the only people really paying will be renters , who have no say.

What happens next, franking credits? Any positive human activity seems invokes a new regressive tax.

If the outcome is as hoped and property prices plunge, how will the useless NSW government operate without these massive and passive harvesting windfalls?
 
And what about tax breaks for the film industry? There's freebies there and no pne complains about them. How come?
 
Not all property investors support negative gearing. I think it is a stupid tax policy, and I've been slightly negatively geared for most of the last 21 years.
So, before you started buying (NG) properties 21 years ago, were the prices too high for you then, and were speculators and greedy LL's pushing up the prices outrageously?

Back then, how did you overcome this disgraceful phenomenon and enter the property market?

Incidentally, if you abolish NG, and a large number of folks stop buying IP's as a result, or sell up and not do anything again in property...what is your recommendation for them to move into as a comparable investment vehicle to secure their future and take away the burden on taxpayers via the pension in later years?
 
House prices weren't expensive five years ago even though we had neg gear.

It's the property boom's fault not neg gear...other factors caused the property boom eg low interest rates , foreign buyers etc. leave neg gear alone I say!
 
House prices weren't expensive five years ago even though we had neg gear.

It's the property boom's fault not neg gear...other factors caused the property boom eg low interest rates , foreign buyers etc. leave neg gear alone I say!
Correct.

The problem with this whole discussion (especially in the media) is they are myopic in their assessment - there are literally thousands of places to buy cheaper-end properties around Aus.

But the whole focus is on inner-city to middle-ring in Capital cities only; by the media, and the FHB's.
 
This is a critical point. My tenants who are saving for a deposit love -ve gearing - for them it means that the govt & landlord are subsidising their rent allowing them to save more faster.

However, the longer term effect would be to ensure a that there were fewer rental properties available, consequently rents would rise, and the next generation of FHB would find it a lot harder to save for a deposit.

Bottom line - short term it may help current FHBs, longer term it would essentially lock a large number of FHBs out of the market.

None of this makes any sense to me, as a FHB.
In the past 6 months it seems 50% of buyers in the FHB market are investors. I would imagine this wouldn't be so bad in the sydney house range once prices reach 700k-800k+
Unfortunately not many FHB fall into this bracket.

You say your tenants are glad they're able to save for a deposit due to NG subsidising their rents? Well good luck to them when due to NG the prices are moving so rapidly their deposit will never be enough.

In the end, your IP can only help one 'group' to rent. This is the same as one owner occupier who now no longer has to rent your property. You aren't helping additional people by owning that property at -any given time-.

I'm not one for negative gearing, (except on OTP?) however perhaps then CGT needs to be adjusted to help investors profit more? To me, property investment should be more risky, but also with great rewards for the people who do their research and buy investments accordingly.
So many these days are an investor simply because with the low IR and gearing, its hardly a risk when you're not too highly geared, like many are on here.

Perhaps i'm missing something, being a noob, but i'd like to see points against what wategos has posted.
 
None of this makes any sense to me, as a FHB.
In the past 6 months it seems 50% of buyers in the FHB market are investors. I would imagine this wouldn't be so bad in the sydney house range once prices reach 700k-800k+
Unfortunately not many FHB fall into this bracket.
You are assuming that just because there are 50% of the market represented by investors; it is them who are forcing up the prices.

If that percentage you quote is true, then it also means that 50% of the market are personal buyers looking for a PPoR.

What are they doing?

I'd bet my right teste (I've already bet my left one today on this forum) that there are plenty of PPoR buyers bidding to the max to get what they want while the rates are low.

An IP at the pricepoint of $700-800k will have a seriously low rent yield. This is not attractive to most of the investors out there as you have suggested..

How many investors out of that 50% are in a position to cover the cashflow shortfall every week, in the hope of some future short term cap gain?

That is a very risky speculative purchase, and most investors are not operating that way; they can't afford to take a massive loss if things go pear-shaped.

No; most investors are trying to mitigate risk, cut down cashflow loss and make the investment safe.

Or; how many of those investors have enough cash to put down as a deposit to make the property cashflow neutral or positive or pos geared?

When you add those factors into the argument; the actual number of investors buying in that price range would be very, very small - maybe those millions of wealthy Chinese folks are the real culprits? :rolleyes:

Most investors are operating in the middle-to-lower price ranges; but this has always been the case.

So many these days are an investor simply because with the low IR and gearing, its hardly a risk when you're not too highly geared, like many are on here.
I disagree.

The boom happens first, then the rents catch up later. This means that currently the yields are dropping and the cashflows are not much better; despite the lower interest rates.

Considering most investors are probably borrowing at a realistic number of closer to 5% (could be actually more) when all other fees and charges are considered, if they are having to buy in a boom area where the yields are dropping from say; 6% (not too may places in any CBD with that yield - I'd bet my scrotum on that) down to 5% and less - the cashflows are negative unless they are in the minority of investors who can put in a large chunk of cash.
 
To me, property investment should be more risky, but also with great rewards for the people who do their research and buy investments accordingly.
So many these days are an investor simply because with the low IR and gearing, its hardly a risk when you're not too highly geared, like many are on here.

Perhaps i'm missing something, being a noob, but i'd like to see points against what wategos has posted.

You know people do make loss on property, it is the educated ones that make the money and more money.
 
So, when Sydney was doing bugger-all earlier in this Century, and everyone was crying about the lack of growth; was that the evil NG investors forcing down/stopping the prices rising?

:rolleyes:
 
NG is like buying a brand new car for tax purposes you spend a dollar to get 30 cents back, no one does it on purpose.

But If they are going to tax you when its positively geared then they should help you when its negatively geared.

That's if you are expecting the Government to do the right thing.

I still don't think its fair that I still have to pay land tax the the tune of 4.5k (Last bill) when my portfolio is making a loss. You don't pay that on shares.

Can you do a piece on how most property investors will never claim a pension ?
 
It would be a brave person that takes the interview. All arguments in favour of negative gearing can easily be demolished, and ABC know what they are talking about here:
http://www.abc.net.au/news/2015-05-06/hockey-negative-gearing/6431100.

Again the comment section I really should get popcorn when I read them.

I loved this one;

Poster A
The other difference between now and 1985 is Capital Gains tax. If you can't negative gear and you have to wear capital gains tax with no benefit, it's a case of damned if you do, damned if you don't. Investors will be getting out of the market quick smart and the reduced supply will result in rental price increase.

A rental price increase will see people shifting from renting to buying and that will negate any perspective housing price drop, that would have been obtained from investors leaving.


Response from another poster;
That's the investors view point.

The Renter/First Home Buyer's view point is that if more stock comes onto the market and the prices drop to a point where mortgages become affordable, they will buy.

The property market will rebalance to a far more affordable level and people will have more disposable income. This will let them spend it in retail. Retail is Australia's largest employer so an improvement in this is good for the economy by creating GST income and personal tax income for the government.


The problem is that not every rent is in the position to buy. Having investors move out means there will be a supply of houses being bought by PPOR that can but the ones that cant they have lost their house and will be on the streets.

You can claim back losses on shares and business so you also need it for property or people will move away from it to get better returns from other investments.
 
None of this makes any sense to me, as a FHB.
In the past 6 months it seems 50% of buyers in the FHB market are investors.
And the 10 years before that ? when we also had -ve gearing.

You say your tenants are glad they're able to save for a deposit due to NG subsidising their rents? Well good luck to them when due to NG the prices are moving so rapidly their deposit will never be enough.
Prices have been stagnant in Sydney for the previous 10 years when we also had -ve gearing. As an aside, IRs are currently so low that many investors are no longer be -ve geared.... & we're mostly pretty happy about that!!!!

So many these days are an investor simply because with the low IR and gearing, its hardly a risk when you're not too highly geared, like many are on here.
And the fantastic thing is that ANYONE can invest in a low risk property if they so choose.

Perhaps i'm missing something, being a noob, but i'd like to see points against what wategos has posted.
If any of what he said is true, then one would expect Sydney house prices to be vastly more expensive than all other major cities where they don't have -ve gearing - they are not.


Imagine the sequence of events if -ve gearing was removed.....
Investors would be discouraged from entering the market.
House prices would probably stagnate for 5-10 years.
Some investors would sell because returns are lower and ..
...some of the current FHBs would benefit by purchasing at lower prices
The end result would be a smaller pool of properties available for rent.
Property prices would then continue to increase due to all the usual reasons.

Of course population growth would continue.
Rents would have to increase to accommodate the extra people & lower supply & increased return required by investors.
The increased rents would make it significantly harder for the next generation of FHBs to save for a deposit.
And the taxpayer would be called upon to subsidise housing or provide other benefits for those unable to save for a deposit... errmmmm just like we do now!
 
...
I still don't think its fair that I still have to pay land tax the the tune of 4.5k (Last bill) when my portfolio is making a loss. You don't pay that on shares.

Can you do a piece on how most property investors will never claim a pension ?


Without NG, I doubt whether it would have been financially feasible for me to invest in rental properties. It would be difficult to demonstrate to lenders that there was adequate cashflow to make repayments. However, if NG were removed now and grandfathered, most of the negative impact will be borne by Gen Y, acting as a disincentive to invest in IP.

I have already benefited from NG in a significant way and do not rely on any government welfare payments. I just wish the opportunities I have continue to be there for ordinary mums and dads, not just the likes of HNW individuals and corporations.
 
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One thing that hasn't been mentioned, with all this talk about the supposed investors pushing up prices is that many investors look at property, at open homes, at auctions, etc, NOT to buy (unless there's a bargain), but to keep up with what is going on in the market.

For instance, a lot of the local agents, when taking your details at open homes, are now recording if your are looking as an owner occupier, or investor. So, we go and get our name recorded, along with everyone else, and we are recorded as investors, but we are NOT there to buy something, we are there keeping abreast of the situation as we have something that will be going up for sale soon.
 
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