dont think gov in general would think that far ahead
ta
rolf
Have to agree- removing Neg gearing, whilst in many peoples minds would go along way towards taking speculation out of real estate and therefore making housing far more affordable for those who struggle to get into the market - would be a political catastrophe.
There are FAR too many people who would be adversely affected by it for any Govt to ever take it on. Even if they did, it would be on new purchases, from a prescribed date. There would never be a backdating. There's just no other way it could be introduced without it being suicidal politically. It would require s VERY strong political will to even entertain it as a future mesaure, and we all know we just dont have those kinds of people in our parliament.
The market is doing all that's required to take growth out of property at the moment anyway. Govt doesnt need to step in at all. Growth requires more than spruiking of the supply v demand argument. It requires an appetite for debt and risk ( Tony Abbott's seen that off with his fearmongering- we all believe we live in Greece) but most importantly it requires the availability of credit, and that's why we're not seeing growth.
Debates about supply, demand, gearing and the like are all sideshows, used for the last 2 decades very effectively by people who stood to make alot of money. The real story behind growth though has always been investors appetite for debt combined with lenders availability/willingness to offer credit to ever increasing LVR's. After all, if you cant get the money- nothing else is relevant! Both those things grew aggressively during the last 2 decades and both are now tapped out.
We're in for a prolonged period of nothingness/ deleveraging even if you dont believe it or havent realised it yet We're going to see constrained appetite for new debt from most investors either because of santiment/fear, limited equity/an inability to access new money, or just a basic realisation that paying a property a dividend for years in the hope of realising a gain, isnt a "forever" strategy. And we are definitely already seeing no capacity for lenders to offer credit at ever increasing LVR's. Valuations have been reflecting this for 2 years. Lending data has been reflecting it for 2 years.
This is where NRAS is so good. Not only can you accumulate property that will effectively give you all the usual losses, depreciation and associated tax benefits any investment property would, but it will also mean no holding costs, and will generate surplus yields that can be redeployed to aggressively paying down your non deductible debt. In other words, it will create a huge amount of "free" equity you would otherwise never have achieved as rapidly, whilst allowing you to hold a property through this protracted flat cycle- all at no cost to you other than the initial deposit and costs associated with getting started.
I just dont understand why people are continuing to focus on side show arguments when the main game is so obviously powerful. Put another way- even if an NRAS purchase made you $0 growth over the decade you have it in the scheme, the surplus cash it generates every year, if redeployed towards your mortgage, will generate hundreds of thousands in saved interest repayments.
Log on to any online "extra repayment" calculator, type in your mortgage, whether it is 200,300,400 or500K - and see what you save when you pay an extra $400-500 a month onto it. ( I'm saying $400-500 because most sub 400K NRAS properties will generate at least 5-6K positive working on an interest rate of 6%- 6.5%)
That's the ball game. Without any consideration of capital growth- the figures you will see in front of you are what you will save in interest repayments. Those savings represent tax free profit you have made- because your principle home is CGT exempt! The figures are what extra equity you will have established, growth free. The figures are what reduced loan amount you will have owing your bank, without YOU having to earn more or put in more of YOUR money. Now compare that outcome with the "chance" of bettering that by a negative /cap growth strategy, in this decades financial environment. Consider how much you'd have to contribute out of pocket each year. Consider how much CGT tax you would need to pay. Deduct those figures from your theoretical profit. Then think about the 2-3K you had to contribute each year, and what it would have saved you in interest if you hadnt needed to fork it out annually, but could have redirected it to your O/O debt instead. What might that have saved you in interest? Then see whether you can match the tax free net outcome NRAS has delivered for you.
Here's a very simple example.400K property - rents for $420 per week.
400K deductible debt @ 6.5% I/O = $26,000 repayments
Management/Rates/insurance etc = $5000
Total Costs to own the property = $31,000
Rental Income = $21,840
Loss = $9,160 ( Holding Costs)
Depreciation = $10,000
Total Deduction/Loss = $19,160
@ Marginal tax rate 38.5% = $7,376.60
Tax Man gives you back $7,376.60, but the property cost you $9,160 to hold. Cash flow negative $1783.40. If this went on for 10 years, you've forked out $17,834 to own the property.
Same property with NRAS
400K deductible debt @ 6.5% I/O = $26,000 repayments
Management/Rates/insurance etc = $5000
Total Costs to own the property = $31,000
Rental Income (discounted by 20% )= $17,472
Loss = $13,528 ( Holding Costs)
Depreciation = $10,000
Total Deduction/Loss = $23,528
@ Marginal tax rate 38.5% = $9,058.28
NRAS Tax Incentives = $9981
Total return $19,039.28
Tax Man gives you back $19,039.28 but the property cost you $13,528 to hold. Cash flow POSITIVE $5511.28. If this went on for 10 years, you've made lump sum repayment of over 55K directly onto the principle balance of your mortgage, but maintained exactly the normal monthly repayments . You've also had $17,834 available to you which would otherwise have been holding costs associated with a Non NRAS purchase. So now you've made lump sum repayments totaling almost $73K onto your mortgage. That's $7300 per year.
Open up a calculator online and check for yourself, what effect $7300 a year of extra repayments will have ! ( You'll have to divide it by 12 and calciulate it as a monthly repayment instead of annual repayment- because none of the online calculators allow for extra ongoing annual repayments. So the effect of the extra repayments wont be as powerful as they would be if they were made as lump sums, annually)
then do the maths on how much cap growth a non NRAS property needs to make, after deducting holding costs and CGT, and see which strategy you think makes sense in this environment. Please note- I havent allowed for ANY cap growth on the NRAS property in this equation. Not because I dont think it will show any, but just to demonstrate that it doesnt need to, in order to create a huge amount of benefit to you over 10 years.
I also havent allowed for any increases to the NRAS incentives, which have grown at 4.6% since the scheme was introduced. In other words, these figures are very conservative and understated. If you dont want to do the calculations- I'll tell you the results.
On a 30 year, 300K mortgage at an average Principle and Interest rate of 6.5% over the next 10 years- making extra principle repayments of $608.33 ( 1/12th of $7300) would save you $197,464 in interest and 13 years/10 months in repayment time.
On a 400K mortgage @ 6.5%- you'd save $228,645 and 11 years/10 months
This is why Ive long made the point that a focus on location/growth just isnt as important as a traditional investment property mindset which has always pursued a strategy reliant singularly on growth. It's important to get one's head around the difference the cash flow makes, and the completely different property strategies it creates. Just as long as you stay out of SEQ so that you dont start out 50-70K behind from day 1, and focus on North Queensland, SA, WA or VIC where valuations are solid, the cash flow can transform your life in a decade, without any of the luck, risk or growth that more traditional strategies have always relied upon. If you have the equity to purchase two NRAS approved properties, the probable outcome is that you'll pay off your entire non deductible mortgage well inside a decade (or go very close to it), be unencumbered, and have two investment properties running themselves without any contribution being required from you. If the property /properties also happen to enjoy some luck and show some growth (and you've got 10 holding cost free years for it to happen) that's just another fantastic bonus on top of what I'm sure anyone might describe as an already very wonderful outcome. But ultimately, if that doesnt happen- you've still achieved significant wealth creation via the elimination or near elimination of your mortgage. That in turn creates a fantastic equity position from which you can launch an aggressive re-gearing/re-investment strategy in a decades time- which is likely to coincide with the next serious growth cycle ( I say that because only increased borrowing capacity and equity will create the platform for another surge- and that will only come from borrowers de-leveraging- which will take several years yet. banks arent going to start throwing 100-110LVR loans around- so it has to come via de-leveraging, which takes time)
If you dont have any non deductible debt, the surplus cash flow still offers you much. It can be used to assist with holding costs on other non NRAS properties you may hold. It can be redeployed to super or an SMSF, which can in turn gear into property which realises a CGT free benefit when sold after pension age,or it can just be used for lifestyle. However you choose to view it, 10K plus of tax free a year has the power to be transformational if deployed well.
Certainly when the minimum guaranteed financial outcomes such as those outlined above are weighed against unguaranteed potential outcomes offered by a non NRAS strategy, it's hard to see why people continue to focus on the side show arguments.
Rant over
