Potential negative gearing changes

[wategos]

When you say "speculator" are you referring to those who do flips?

No, anyone who is negatively geared is a speculator by definition of the word. Making a loss hoping for future capital gains profit, that is what speculation is. Yes they are investors also, speculation is a type of investment, but we are talking about negative gearing so easy to just to say "speculators" than "people who are negatively geared", same thing.

Or; is it just your derogatory term for all property investors who you seem to hate?

No I dont consider it a derogatory word, plenty of people speculate, me too. I just dont think the government should subsidize this investment approach through tax deductions on other unrelated income. Dont know why you think I hate property investors, been doing it over 20 years.

 

[Rixter]

I think Steve's view is a fair one though. If you negatively gear a property you are speculating on future price or rent growth to make a profit in the future, so how are you not a speculator?

By that definition, anyone investing in any of the asset classes & types, is a speculator.

I think not..

 

[lazibones]

He must be goose, you can negative gear a property and have positive cash flow, and profit in the first year when you can claim maximum depreciation.

 

[jerrybee]

Maybe I just have a very different interpretation of the word "speculating" in this context.

To me, speculating is about the motivation behind the action, not the way it's financed.

Speculating to me is synonymous with gambling - you're making a bet based on very weak information (i.e. my friend said BHP is going to double!). Investing, in contrast, is backed up by much more research, knowledge and experience.

How this is actually financed is irrelevant. Whether it's cashflow positive or not is irrelevant. You can gamble at the casino with your own money, or borrowed money - but it's still gambling.

Sure if you take the literal definition then yeah I guess you could call all investing speculation. But really, we're not machines - context is important, just like the word "theory" in the field of science literally equates to "fact".

But that's just me...

 

[skater]

I just dont think the government should subsidize this investment approach through tax deductions on other unrelated income.

For me, personally, I don't give a flying fig what they do with NG, because I'm not negatively geared, but I do find it offensive that so many people have a problem with property investors that are negatively geared, yet no issue at all with any other form of negatively geared business or investment. If you take it from one, you should take it from all.

The government needs to step back and instead of trying to screw over property investors, they should embrace them. After all, they reduce the need for government housing, AND they are trying to set themselves up for retirement, therefore not being a burden on society and the struggling welfare system.

 

[hobo-jo]

He must be goose, you can negative gear a property and have positive cash flow, and profit in the first year when you can claim maximum depreciation.

I wouldn't consider that negatively geared personally, over the FY (or after tax refund) it's been positive.

But as I said it's just his subjective view on the matter.

For me, personally, I don't give a flying fig what they do with NG, because I'm not negatively geared, but I do find it offensive that so many people have a problem with property investors that are negatively geared, yet no issue at all with any other form of negatively geared business or investment. If you take it from one, you should take it from all.

I don't have a problem with property investors taking advantage of existing tax policy, but do think the policy should be changed.

I think quarantining all assets along with property would be a reasonable move, but there is justification for treating an asset that directly affects the livelihood of most Australians differently to one that doesn't. Not all assets are equal and not all assets are treated equally in many other circumstances.

AND they are trying to set themselves up for retirement,

So is a bank robber

 

[BayView]

I went to a property talk last night by Steve McKnight and he basically said anyone who buys a loss making property (i.e. negatively geared) is a speculator.

I disagree.

I have owned neg geared property - almost everyone has to own it.

Because; it is simply too long a process to save enough cash to put down enough deposit to buy the property - for the vast majority of Mum and Dad investors.

I never had any cash deposits for any of the 5 we owned - we used equity borrowed from our PPoR for deposits, plus other loans for the balance.

I did it because I wanted to take action NOW to try and build my own wealth where my income wouldn't, and I had the means (PPoR) to do it..

Other folks without this advantage have to grind away at a minimal deposit, the borrow a stack if they want to enter the market.

Hence; most investors are neg geared - at least in the earlier years and the mid-term.

It is true they use the neg gearing tax deductions to help them in this regard, personally I have tried to buy IP's with very good rental yields to minimise neg gearing as much as possible.

On top of this; I have tried to always buy the IP for a lower price - to reduce borrowings and increase the yield and IRR..

I would bet my house that most Mum and Dad investors do exactly the same.

You guys keep coming up with this argument that investors are forcing up the price...I have never seen it. Actually; this is not true - I've seen it in a few areas where the yields were really really good, and the investors moved in for a time until the yields dropped away, then the excitement ended. But these areas are not yer standard city suburbs that FHB's want to live in; or the wider general markets in the major cities.

It is not in our interest to force up the price by offering the asking or even over the asking price - that is what the O/O's do.

If I was stupid enough to go for a 3% or thereabouts yield in a sought-after suburb, I certainly wouldn't be offering over the asking price - or even the asking price.

 

[BayView]

No I dont consider it a derogatory word, plenty of people speculate, me too. I just dont think the government should subsidize this investment approach through tax deductions on other unrelated income. Dont know why you think I hate property investors, been doing it over 20 years.

So, why are you so against neg gearing?

Whether we think it is right or wrong; the reality is that it is in place, and anyone can enjoy it's benefits.

I wish I had known about this when I was 20 years old.

It is not a rort, or illegal - it is legal and encouraged by the Gubb via the tax concessions they put in place to encourage folks to do it.

The fact that it has been in place for decades - through several booms and slumps - is testament to the fact that on it's own it has very little bearing on price.

 

[BayView]

I think Steve's view is a fair one though. If you negatively gear a property you are speculating on future price or rent growth to make a profit in the future, so how are you not a speculator?

This could be said about any type of enterprise/investment where you anticipate making money from the endeavor.

But the context of how the anti-property, anti-neg gear camp use it suggests that their intended connotation is one of a derogatory nature.

I bought a business, with the expectation to make money. Does this mean I am a speculator?

 

[skater]

I think quarantining all assets along with property would be a reasonable move, but there is justification for treating an asset that directly affects the livelihood of most Australians differently to one that doesn't.

There it is again! Oh boo hoo, go cry me a river! Yes, property is expensive. I make no apologies for that! Not everyone will own a property! I make no apologies for that either.

The fact is that it IS expensive, it has always been expensive and it always will be expensive. You have to save, and dare I say it, you may have to sacrifice in order to get something. The problem is that so many expect to buy property while continuing their consumer spending, and they don't just expect to buy in the outskirts of the City's, they want the innercity stuff with all the bells & whistles.

So is a bank robber

I'm pretty sure I'm a world away from a bank robber.

 

[wategos]

So, why are you so against neg gearing?

I have grown more against it as I have got older. I have kids growing up and I can see the damage that the explosion of government subsidized property investors making a loss is going to do to them. I do not know how anyone can come the conclusion that speculators are not pushing prices up or pushing first home buyers out of the market. FHB rates are at historically low levels.

Property investment is fine, but if someone wants to gamble on price rises by taking an annual loss they should wear that loss alone. Removal of NG would cost me a small amount but I want it gone, Australian will be better off.

 

[hobo-jo]

Because; it is simply too long a process to save enough cash to put down enough deposit to buy the property - for the vast majority of Mum and Dad investors.

Here's my response to that BV:

There it is again! Oh boo hoo, go cry me a river! Yes, property is expensive. I make no apologies for that!

And on this...

It is not in our interest to force up the price by offering the asking or even over the asking price

It is not in an investors interest, but it happens.

In fact I could link you to many examples on here where Somersoft members have given other investors advice on how to successfully purchase a property in a hot market which often means going in at or over asking price.

The problem is that you are are trying to project your own thinking on to all investors. Not all investors are rational, many get too greedy and chase prices. If they don't how do you propose bubbles develop in other markets where it's only investors and owner occupiers don't even exist?

You're living in a fantasy land BV.

 

[skater]

I have kids growing up and I can see the damage that the explosion of government subsidized property investors making a loss is going to do to them.

So we get to the root of the problem! You now have a vested interest in trying to keep the property market down, so your own offspring can purchase (as if it's at all possible to keep a booming market down).

Maybe you should be teaching them to save their money, not go out drinking or clubbing. Teach them to work hard, and be decent and realistic about the price of things. That they can't go out & buy something on the North Shore, that it's fine to go West. That they don't need to "do" coffee every day, and that it's normal to take their lunch instead of buying it. That buying diner out is a luxury, not a necessity. That you don't need to wear designer clothes.

You know...all the stuff that we 'oldies' did when we were young saving to buy our first one. In fact, just look around the forum here & you will see a heap of 'young uns' doing just that. You just need to teach yours to have the same focus.

 

[skater]

In fact I could link you to many examples on here where Somersoft members have given other investors advice on how to successfully purchase a property in a hot market which often means going in at or over asking price.

Really! I can't recall anyone here telling someone else to jump into a hot market! There's many threads with asking for advice, and if they should buy in xxx suburb. There's also a lot of responses to those same threads warning that it's hot in Sydney right now. In fact I've answered quite a few where I've said that I think Sydney still has a way to go, however I am NOT buying in Sydney at the moment, because you never know when it's going to top out, and I am, in fact, selling.

 

[hugh72]

I have grown more against it as I have got older. I have kids growing up and I can see the damage that the explosion of government subsidized property investors making a loss is going to do to them. I do not know how anyone can come the conclusion that speculators are not pushing prices up or pushing first home buyers out of the market. FHB rates are at historically low levels.

Property investment is fine, but if someone wants to gamble on price rises by taking an annual loss they should wear that loss alone. Removal of NG would cost me a small amount but I want it gone, Australian will be better off.

Maybe your kids should become 'speculators' first as a way to enter the market, it's not going to get any easier

 

[hobo-jo]

Really! I can't recall anyone here telling someone else to jump into a hot market! There's many threads with asking for advice, and if they should buy in xxx suburb. There's also a lot of responses to those same threads warning that it's hot in Sydney right now. In fact I've answered quite a few where I've said that I think Sydney still has a way to go, however I am NOT buying in Sydney at the moment, because you never know when it's going to top out, and I am, in fact, selling.

One example I found with a quick search (though not clear if OP is buying PPOR or IP): http://somersoft.com/forums/showthread.php?t=106347 There have been countless other examples I've seen over the years.

 

[BayView]

Here's my response to that BV:

And on this...

It is not in an investors interest, but it happens.

In fact I could link you to many examples on here where Somersoft members have given other investors advice on how to successfully purchase a property in a hot market which often means going in at or over asking price.

The problem is that you are are trying to project your own thinking on to all investors. Not all investors are rational, many get too greedy and chase prices. If they don't how do you propose bubbles develop in other markets where it's only investors and owner occupiers don't even exist?

You're living in a fantasy land BV.

everything you have said in this post is true - it has happened.

But going in at or over asking price in a hot market in a sought after suburb is par for the course - always has been. That's why it's called a "hot market"

But when you consider the volume of properties sold around Aus each year, and the percentage of those sold to investors, and the percentage of those investors who are a single IP owner, a Mum and Dad investor, and the percentage of those who are doing it wrong by buying over asking price, full of emotion, outbidding at the auctions above the reserve........

I would wager you are discussing a very very small percentage of properties sold where a FHB is inconvenienced by a greedy LL who is pushing up prices.

From experience, the majority of properties that sell above asking are by those who are panicking in a boom market, and that applies to every purchaser, but the majority of whom are O/O's in that scenario.

When the market is at it's absolute best in term of climate for investors to buy, the best numbers that are ever mentioned are always less than half the properties sold...the absolute best conditions.

The rest of the time, investors are very thin on the ground, most who are actually out there are doing research to try and get a good buy; not pay top dollar on an emotional surge.

 

[BayView]

One example I found with a quick search (though not clear if OP is buying PPOR or IP): http://somersoft.com/forums/showthread.php?t=106347 There have been countless other examples I've seen over the years.

Pay particular attention to post number 3.

Now, let's get some perspective here; hot markets don't last forever - there are also terrible markets where Vendors can't sell.

My first IP was on the market for 6 months before I bought it, and I paid just under 10% less than asking price. I probably should have offered less and might have got it.

My second IP was bought at approx 10% off asking.

What is stopping anyone from buying in a flat market with no competitors? Hasn't Sydney recently come off a number of flat years?

This argument always comes back to the same thing - sookylala FHB's who want to buy a cool pad in a cool location (just like the rest of the world) and they want it now, and for a song..

"Daddee, I want an Oompaloompa, NOW!"

And it's always the rich and greedy LL's with their unfair advantage and neg gearing that are stuffing up our party.

Get real.

Here's a little anecdote for ya's as it relates to housing affordability, NG and FHB's and all that rich LL BS...

I returned from playing tournaments in Qld with no car, no money, no job, and nowhere to live...aged 22 - 1983. Stayed at my mate's parent's house long enough (about a month) until I found a job, then moved out to a boarding house. Not even average wages.

Managed to buy my first PPoR together with the then girlfriend approx two and half years later.

Cool pad in a cool postcode? Nope.

Bog-standard 70's tragedy brick veneer in "car-wreck-in-front-yard" Boronia.

Stone cold broke at 22; evil greedy LL at aged 40, buying up all of Melb and killing off the chances of all the other broke 22 years olds.

This is not to brag or boast; it's merely to illustrate that Neg Gearing is not the big problem in regards to pricing and affordability for young folks (or anyone) trying to buy.

 

[BayView]

I think there is a loose correlation but ultimately rents are driven by supply / demand fundamentals. I don't think landlords can jack up the rent just to offset declines elsewhere.

This is true.

We had an IP in Highett some years ago, and the rents did not go up for 2 years (neither did the CG, by the way).

We currently have an IP in Kalgoorlie, the rents got up to $310 p/w for our unit at the height of the mining boom, now they are back to $265 p/w.

 

[hobo-jo]

This argument always comes back to the same thing - sookylala FHB's who want to buy a cool pad in a cool location (just like the rest of the world) and they want it now, and for a song..

This is not to brag or boast; it's merely to illustrate that Neg Gearing is not the big problem in regards to pricing and affordability for young folks (or anyone) trying to buy.

BayView, I've no doubt there are many living a lavish lifestyle that could manage to buy if they knuckled down and stopped spending their money on rubbish, but as someone who manages their money well, doesn't spend excessively, can easily afford to buy in today's market, has owned before and will buy again regardless of conditions or negative gearing -> Prices are much more expensive today than they were in the 1980s or even the 1990s. It's not about expectations, it's simply that on just about any measure you care to look at prices are higher today than they were then, see the first 3 charts in this article I wrote:

http://www.bullionbaron.com/2015/04/australian-property-market-secular.html

If you can't admit prices have risen dramatically in real terms then we have nothing left to discuss. It's not even the "sookylala FHB's" discussing this with you in the thread.

Housing serviceability is not too bad today because interest rates are too low, but the high prices mean that everyone has to take on a substantial amount of debt (and risk) to buy. Given where prices have gone today, I'd expect that if interest rates went back to where they were a few short years ago (say around 8%) today, we'd have a crash in Sydney prices and the banks would have to be bailed out. That's not a situation I like the country to be in personally. I'd rather see lower house prices, investors chasing yield instead of capital growth and a more sustainable housing market for all.

Negative gearing isn't the only problem, it's only a small part. We need to target other areas of speculative demand such as foreign buyers, the CGT discount which combined with NG has been toxic and maybe even consider cutting back FHB grants and discounts.