Potential negative gearing changes

[wategos]

Such the mojority of such FHBs can never afford to buy a house because with NG, the investors can always pay more than them.

I know a certain street where I have seen most of the houses coming into the market in the last few years. Built in late 60s, the houses hit the market as the original owners move to nursing homes. Almost all are snapped up by investors.

This is what I am talking about and what I see also.

 

[Angel]

This is what I am talking about and what I see also.

Aha moment

Thanks Singo for your post above. In five years reading about NG here, this is the first time I recall that I have been able to see what you guys are getting at. Not saying it hasn't been presented before, just that previously the info hadn't sunk into my How is this going to affect me brain.

 

[keithj]

So if negative gearing is limited to new homes only, what happens to the established stock? Who does it get sold to?

Over a period of a few years OOs & FHBs are much more likely to buy them than investors. Then when the investors have sold up, the next generation of renters (see vulnerable groups referred to above) are unable to rent in the established areas, because there is no supply of rentals, or of course the supply of rentals is so limited that rents skyrocket.

You & others have only addressed the short term effects, the longer term effect is clearly a bad outcome for the next generation of FHBs & renters.

Of course there is a need for rentals

So you're saying there is a need for rentals, but just not in the established housing markets - because they are reserved for OOs, or those who are prepared to pay high rents ?

 

[hobo-jo]

So you're saying there is a need for rentals, but just not in the established housing markets - because they are reserved for OOs, or those who are prepared to pay high rents ?

Typically the highest yielding properties are in the lower socio economic areas... so those most vulnerable are already paying "high rents".

I would like to see a reversal of this trend... investors prepared to wear short term losses via negative gearing to speculate on price appreciation & push up prices. What policy changes do you think would be better to reverse this trend (I don't think negative gearing is the only problem as stated earlier)?

 

[BayView]

I know a certain street where I have seen most of the houses coming into the market in the last few years. Built in late 60s, the houses hit the market as the original owners move to nursing homes. Almost all are snapped up by investors.

I am one of them. Long live negative gearing

Now, here is the critical factor in this argument;

how many of those houses in that street were sold for over the asking price?

The other elephant in the room that has not been mentioned by anyone so far in this ridiculous argument that the anti-NG sooks keep spewing forth is:

the valuations of the properties sold.

When an investor (or anyone with a finance required for the sale) applies for the finance, the first thing the Bank does is value the property.

Guess what?

If the purchaser has offered more than what the Bank deems it's value to be;

THERE IS NO FINANCE.

OR, they will ask for a much bigger cash deposit from the purchaser to reduce the Bank's risk.

Now, out of all those houses sold in your street; how many were cash sales with no finance, or sales with more than 20% plus costs in cash as deposits?

 

[BayView]

HOBO,

I reckon I've got your position worked out;

*Owns no property (renting)
*Mid 20's professional employee on decent wage (or not on decent wage)
*Would like to live in cool postcode with cool amenities and close access to CBD - for more cool stuff
*Cannot acquire a property in above area due to cost of properties being above your income/ability to save.
*Angry at investors for their perceived influence on prices of the properties you want to buy.

Happy to be proved wrong, or course.

I thought by now with you interest in gold, etc, you'd have made enough to put down a decent cash deposit and blow us greedy investors out of the bidding water?

 

[BayView]

Typically the highest yielding properties are in the lower socio economic areas... so those most vulnerable are already paying "high rents".

I would like to see a reversal of this trend... investors prepared to wear short term losses via negative gearing to speculate on price appreciation & push up prices. What policy changes do you think would be better to reverse this trend (I don't think negative gearing is the only problem as stated earlier)?

The reason why these losses are escalating is due to a few factors;

More population, therefore more investors (also more renters and more home owners of course)
More information in last 20 years about investing, therefore more investors.
Radical shift in lending options away from traditional 80/20 P&I loans -
Lots more LODoc,
IO,
90/10,
95/5 with LMI,
Equity borrowed deposits plus separate loan (equals 100% borrowing) - (that's what I've always done - despite this advantage; still never paid over the asking price).
Depreciation schedule explosion for investors (see; more info and knowledge)

Back in 1985 when I bought my first PPoR, the population was probably 75% of what it is now or even less.

Hoses were a lot less in dollar terms, and I as one example had never heard of investment properties or NG, etc.

So the collar amounts represented in this graph merely reflect those things - not an explosion of investors as such. NG was in operation back then, and had been for who knows how long before this.

 

[keithj]

Do we agree that popln growth will continue ?
Sure.. but thats another issue that affects both scenarios
I've mentioned 2 supply issues..
1) Investors have been supplying the market for rentals of existing houses for decades. Removal (or limiting) of NG would reduce the supply of rentals of existing housing.
No.. because they invest in existing housing and the housing still exists
2) Investors are less likely to invest in new supply even if it offers -ve gearing benefits.
If NG remains for new housing it could only increase investment in this area, not decrease it
Are you saying those supply issues won't exist ?
No
Or are you saying that even though there will be supply falls and demand (popln growth) increases, prices will remain in equilibrium ?
No, supply doesnt fall. If it does because a former renter bought the property then demand has fallen also
Or are you suggesting that we don't actually need a supply of rental properties ? and that everyone should be an OO ?
No
And are you happy to condemn renters (temporary workers, recent immigrants, migratory workers, broken families, recently left home young adults, those saving for a PPOR, and many other vulnerable groups) to either the outer ring or new stock or high rise apartments ?
No.. A lot of renters including from these groups would be able to afford a home quicker when they dont have to compete with speculators.

Adding the population growth factor into the argument is a furphy, its a seperate issue which applies upward pressure to both house prices and rents.

You appear to be referring to supply of housing & not supply of rental housing.

So just to repeat the issues....
1) Investors have been supplying the market for rentals of existing houses for decades. Removal (or limiting) of NG would reduce the supply of rentals of existing housing.

You said NO - to me that makes no sense. If investors are disincentivised from investing in existing stock, then surely a proportion will stop investing there & OOs will prevail. In the long term the net result can only be a lower supply of rentals of existing stock.

I think your point is that the current generation of FHBs will buy that stock therefore no new supply is required. I wouldn't disagree with you.

However, I would counter that by saying that that is short term thinking - the next generation of FHBs would suffer higher rents due to a) lower supply of rental stock of existing housing, b) lack of -ve gearing meaning a higher yield is required by investors.


2) Investors are less likely to invest in new supply even if it offers -ve gearing benefits.

hobo & I (& many other investors) agree that investors prefer better located housing, and would be less likely to buy new stock.. so you may be in a minority if you think they will. There are 1000's of threads re-iterating that viewpoint.


My next point was .....
And are you happy to condemn renters (temporary workers, recent immigrants, migratory workers, broken families, recently left home young adults, those saving for a PPOR, and many other vulnerable groups) to either the outer ring or new stock or high rise apartments ?

You said No.. A lot of renters including from these groups would be able to afford a home quicker when they dont have to compete with speculators.


I agree that the current generation may well be able to afford a home faster, but they would be the ones who condemned future generations to higher rents and less choice of housing (especially of existing stock).

That's why I consider the advocates of the removal of NG as either short term thinkers, or selfishly attempting to gain financial benefit for themselves at the expense of our children.

P.S. Like you my IPs are no longer -ve geared.

 

[keithj]

I would like to see a reversal of this trend... investors prepared to wear short term losses via negative gearing to speculate on price appreciation & push up prices.

What policy changes do you think would be better to reverse this trend (I don't think negative gearing is the only problem as stated earlier)?

Dunno. I mostly think about what IS, rather than what SHOULD BE.

I'll have a browse through the Senate Report you kindly linked to...

I think that most things that may change the balance of OOs/investors in existing suburbs would be tinkering around the edges..

Possibly limit -ve gearing to the 1st 5 properties, or a max of $10K pa per person. Although easy to get around using trusts.

Maybe limit NG to a max of 3 years (on ALL assets, not just IP) before being quarantined. That would be harder to avoid.

More NRAS schemes ?



However, the root of the problem is that almost everyone wants a nice house in a nice suburb, and will pay to make it happen. Even if investors were totally removed from the market, OO demand would continue to increase, and supply would remain limited due to geography, politics, & many other factors.

Until there is another prestige item that defines a person, we will always want the best possible house in the best possible suburb.

 

[hobo-jo]

HOBO,

I reckon I've got your position worked out;

*Owns no property (renting)
*Mid 20's professional employee on decent wage (or not on decent wage)
*Would like to live in cool postcode with cool amenities and close access to CBD - for more cool stuff
*Cannot acquire a property in above area due to cost of properties being above your income/ability to save.
*Angry at investors for their perceived influence on prices of the properties you want to buy.

Happy to be proved wrong, or course.

I thought by now with you interest in gold, etc, you'd have made enough to put down a decent cash deposit and blow us greedy investors out of the bidding water?

lol pretty far off there BV. Renting (for last 5+ years, but have owned before), slightly higher than mid 20s, above median wage (x2), cool post code doesn't matter too much to me, but close to CBD/beach is preferable, could easily acquire property in desired suburb (choose not to as personal circumstances don't yet warrant long term purchase & think Adelaide prices not going anywhere fast in next 1-2 years), investors in no way affecting my ability to buy, likely I will turn into both investor & home owner in <3 years.

I'm not angry BV, I just try not to let my personal situation get in the way of what I think is fair. As I said earlier in the thread, my position on NG won't change even with a couple of IPs under the belt.

 

[sanj]

HOBO,

I reckon I've got your position worked out;

*Owns no property (renting)
*Mid 20's professional employee on decent wage (or not on decent wage)
*Would like to live in cool postcode with cool amenities and close access to CBD - for more cool stuff
*Cannot acquire a property in above area due to cost of properties being above your income/ability to save.
*Angry at investors for their perceived influence on prices of the properties you want to buy.

Happy to be proved wrong, or course.

I thought by now with you interest in gold, etc, you'd have made enough to put down a decent cash deposit and blow us greedy investors out of the bidding water?

Not sure why you have to play the man in this instance.

I'm at the opposite end of nearly everything you said above
- own property (aalthough I am renting),
- self employed,
- already live in a great part of town,
-can afford to buy more if I wanted to
-not angry at investors

Yet I think hobo brings up some excellent points. Playing the man does no good and I don't recall him doing the same with others.

House prices are indeed higher relative to income than in many different times in the past. This isn't even up for debate, it's a clear and identifiable fact although with current low interest rates 2 income households are in a decent buying position in most cities imo. Whether or not it is sustainable is what should be debated, not the fact that it is true. There are plenty of things cheaper and more accessible now vs in the past, it's just that housing isn't one of them.

Personally I think negative gearing has played a part in this but not solely as some claim.

It's at least a relevant discussion I consider worth having so I'm glad he has a thick enough skin to continue doing so.

 

[hobo-jo]

Here is an interesting chart showing the influence of investors in the current (established) market (obviously nationwide trend is being driven by a couple of key capitals at present):

Australian investor lending for established properties jumped 104% in four years

http://www.businessinsider.com.au/c...ed-properties-jumped-104-in-four-years-2015-5

 

[keithj]

Here is an interesting chart showing the influence of investors in the current (established) market (obviously nationwide trend is being driven by a couple of key capitals at present):

Australian investor lending for established properties jumped 104% in four years

I too saw those figures, was a little surprised & dug a little deeper.....
According to JP Morgan....

JP Morgan team note that "it is hard to get a totally clean read on what is going on with investor lending flows and practices" as refinancing activity is not separately reported (as it is in owner-occupier lending) and a new loan is technically created whenever the underlying security changes, even though the total debt stock might not have changed.

I reckon it's those damn broker churning.....

 

[blw101]

Question.

There have been several different versions of the argument made that the long term effect of abolished NG would be a net reduction in available housing stock for rent.

What about the demand side? Will removal of NG stimulate a greater proportion of the purchaser market to become OO's rather than renters, and by definition, won't that reduce demand for rentals as former renters convert to OOs?

Or is the demand split between purchasing and renting relatively inelastic, such that prices must reduce by so much relative to rents that yields become attractive and investors can obtain acceptable returns without NG!?

 

[BayView]

Question.

There have been several different versions of the argument made that the long term effect of abolished NG would be a net reduction in available housing stock for rent.

What about the demand side? Will removal of NG stimulate a greater proportion of the purchaser market to become OO's rather than renters, and by definition, won't that reduce demand for rentals as former renters convert to OOs?

Initially, the demand for rentals will decrease.

This might trigger a softening of rent markets - a drop in rents. I am experiencing exactly this atm in Kalgoorlie with our IP (mining boom finished) - rents went from $310p/w back to $265. We only paid $105k for it, so still ok for cashflow.

But, people still need to rent at various stages of life - even older folks, and there is a new crop of younger renters leaving home every year after tthey finish school, Uni, etc, plus the population growth has not gone backwards last time I looked.

The end result will be less rentals available (unless BG is applied to new stock) and the rents will climb back up, because the rent demand will return to normal.

It might take a year or so; but the end will be tears for renters.

Meanwhile; property prices won't really drop much - if at all - because the sudden possible flood of properties dumped by investors, will be fought over by the buyers and absorbed by the market, and prices will return to where they were soon enough - sorta like the effect of the FHBG.

The end result will be a small window of opportunity for cheaper housing until they are all sold, then prices return to normal, but rents will increase quite a lot once this buying spree ends..

 

[BayView]

Here is an interesting chart showing the influence of investors in the current (established) market (obviously nationwide trend is being driven by a couple of key capitals at present):

Australian investor lending for established properties jumped 104% in four years

http://www.businessinsider.com.au/c...ed-properties-jumped-104-in-four-years-2015-5

Again with the graphs.

Let us all ask ourselves something;

Outside of this "Club" we all sit in and type stuff to each other;

How many of you know investors who are actively buying IP's, or you know who already own IP's?

How many of your friends, relatives ad acquaintances own or are seriously looking to buy (looking doesn't necessarily mean they will even buy) an IP.

People on this forum that you know are excluded - only the folks in your normal day to day life; your school friends, co-workers etc.

Of course; this Club we sit in is not the accurate representation either, because there are a large number of folks on this site whose career is in Lending, and/or real estate, so they are naturally going to know folks through work who are investors...but you get what I mean.

Does anyone know more than 6 people (listed above) who own anything other than their own PPoR? (holiday houses don't count).

 

[BayView]

Not sure why you have to play the man in this instance.

I'm at the opposite end of nearly everything you said above
- own property (aalthough I am renting),
- self employed,
- already live in a great part of town,
-can afford to buy more if I wanted to
-not angry at investors

Yet I think hobo brings up some excellent points. Playing the man does no good and I don't recall him doing the same with others.

House prices are indeed higher relative to income than in many different times in the past. This isn't even up for debate, it's a clear and identifiable fact although with current low interest rates 2 income households are in a decent buying position in most cities imo. Whether or not it is sustainable is what should be debated, not the fact that it is true. There are plenty of things cheaper and more accessible now vs in the past, it's just that housing isn't one of them.

Personally I think negative gearing has played a part in this but not solely as some claim.

It's at least a relevant discussion I consider worth having so I'm glad he has a thick enough skin to continue doing so.

I don't normally play the man, and I am not having a go at him.

Just trying to establish Hobo's agenda and motivation, and how it pertains to his mindset on this subject...after all; he is perhaps the most vocal on anti-NG on this site.

He said he doesn't own property - this is definitely a factor if you are renter trying to buy and perceive NG and investors to be a bogey-man.

House prices are indeed higher relative to income than in many different times in the past. This isn't even up for debate,

Hobo, and others; keep on with the affordability aspect, and continue to blame two factors - investors and NG.

Yes, prices have gone up, but there are still plenty of folks out there buying houses - look at Sydney right now.

But, there are also many many properties that can be bought by FHB's, despite this price growth.

He is a FHB - just establishing his agenda so everyone knows.

I don't have an agenda - just passing on my experience in this property game.

No matter how much I and others tell him and these other FHB's that they can still buy property despite NG and investors, they continue to put "not possible" as their reality.

You own property; has NG been a deterrent or a hurdle for you?

Have investors stifled your fun?

 

[Big Will]

and with the budget released and not removing negative gearing this conversation can die again and it will be resurrected in another year...

 

[hobo-jo]

Hobo, and others; keep on with the affordability aspect, and continue to blame two factors - investors and NG.

Nope. I don't blame investors, I blame government.

Negative Gearing.
Capital Gains Tax Discount.
Foreign Investor Rules (& Enforcement Of).
First Home Owner Grants or Concessions.
Urban Growth Boundaries.
Construction/Development Taxes & Costs (Including Red Tape).

The one thing that unites all these (& other) factors, that pull forward demand & restrict supply, is government policy.

I don't blame or hold a grudge against investors who use these policies (within the bounds of the law) to their advantage, but would like to see them changed.

He is a FHB - just establishing his agenda so everyone knows.
I don't have an agenda - just passing on my experience in this property game.

I am not a first home buyer.

and with the budget released and not removing negative gearing this conversation can die again and it will be resurrected in another year...

Yep

 

[BayView]

I am not a first home buyer.

I stand corrected.

But; currently; you own none and are trying to find something of good value/cheap?

Just on the Gubb; you blame them for the high prices?

I agree; the FHOG did not improve anything....pushed prices up.

NG was already in place.