Removal of negative gearing

Folks,
I am not sure how wide spread this is...but there is a rising sentiment amongst pollies to remove negative gearing. :eek:

Now we all know that would mean rising costs for for landlords and rents would skyrocket in short term / longterm.(Keating et al). But besides this scenario what are the other possible situations that SSians can think of ?

Here is a report which illustrates the effects NG is having on prop market.

http://www.aph.gov.au/Senate/committee/hsaf_ctte/submissions/sub25.pdf

But let us just say as this guy suggests...pollies do this then how would things pan out ?
What if NG is retained retrospectively but is removed for any further purchases of existing props ? How would this affect CG on existing properties ? How was CG affected when NG was removed for a brief period ?
Have we been here before ?

Also they are proposing incentives (6000/yr for next 10 yrs) for investors to put money in new developments / buildings.
Where are these props ? Is / Will anyone from SS buying there ? How are the figures stacking up ?

Author above says he is afraid of having a two tiered society in Australia. And his proposals to correct it. So will these really work ? Or will it be a short term remedy ? Is this a left wing attempt of correcting ills of society ? Or is he suggesting some fundamentally different that would hurt SSians ?

Some here believe in a two tiered society. Renters & Landlords. Nothing wrong with that I suppose. Or is it..??
 
if negative gearing was removed, i feel there would be a massive upheval for several years (perhaps up to a decade), before things settled onto a new level. i don't really know enough of what has happened in other countries to comment - but i can see a massive short term pain for both landlords and tenants before equalibrium is restored - by higher rents compensating for lower tax breaks. alexlee can comment better on that topic.

and, in the long term, i don't believe removing ng will make any difference to the "two-tiered society".

there will always be the have and have nots. the consumers and the suppliers (who are also sometimes consumers). those willing to get stuck in and have a go and those willing to sit back and expect to be fed.

there is no negative gearing in america (the top bit of america) - and yes, house prices are lower in comparison to rents than they are here - but they still have the two-tiers (maybe three).

the only way to prevent two tiers is to have a communist state - where nobody has anything.

unfortunately, to many people believe that it is possible for everyone to "have" - but i don't think so in a capitalist country where people have choice.

as for investing in the future? regardless of any incentives of $6000 (which wouldn't even cover half the stamp duty) the figures would have to stack up without it for me to invest.
 
I wouldnt mind - Im o/s and am buying via a DT. I presume losses could still be carried forwards and offset against future rental income. It would only mean rents go up and/or future properties are cheaper to buy. Being in my (late-ish) 20's it would be fine by me - would probably buy more IPs sooner.
 
You would think that the best way to remove ng would be to phase it out or have it claimable for only a set period of time. Afterall why should a loss making business be subsided forever? I think that governments have made themselves reliant on private landlords to supply housing and they would need to change that before removing negative gearing.

Personaly we would be little effected by the removal of negative gearing.
 
Some here believe in a two tiered society. Renters & Landlords. Nothing wrong with that I suppose. Or is it..??

You don't really think this is what SS forum members believe, surely?

If gearing is removed, we will probably not change a thing.
 
the only way to prevent two tiers is to have a communist state - where nobody has anything.

Isn't it a fact that in communist countries there are still two tiers, those with nothing, and those with almost everything?

In other words, it is a farce, isn't it.
 
Negative gearing doesn't cost that much for the government, especially with a view that it is almost a subsidy to compensate inadequate public housing. Which ever politician making that decision would face lots of negativity for the short term, due to higher rent and more homeless people. Even a tough guy like Keating had failed removing it, I do not see the slightest possibility any of the current crop of politician having the guts to do so
 
Folks,
I am not sure how wide spread this is...but there is a rising sentiment amongst pollies to remove negative gearing. :eek:
I think -Napoleon-once said "In Politics :rolleyes:Stupidity is not a Handicap"and the last recession investors faced in the country,was caused by a combination of factors,and most realted to developments overseas much the same as today, but when you look back in Australian investing history in the middle 1980's when they gave "N-G" the chop,and by the way back then it only hit
investment property,not the equities markets,but that did bring on many forced sales by investors taking their own disposal action before their money affairs are forcibly taken out of their hands,i hope they don't but who knows,rent levels and property prices are always in a sharp line with the simple law of suppy and demand,and in SEQ-QLD the demand is greater than supply,high employment,but the Federal Government maybe will deliberately go down this road over a short period,after all everything is a numbers game,MR Rudd can look after the small %of property investors or he can look after the people that voted him in..willair..
 
I am hoping neg gearing will go but I really cant see it happening. it would be great to get a fair return on my assets
 
Removal of ng would hurt me a lot.

Mind you, I did a quick calc and, assuming that the removal of ng caused rents to increase by 25% overnight (because of less rental stock available) then this would cover the expense of the loss of ng!

But if the removal of ng stopped the cg available to my properties then it wouldn't be worth keeping them.

Cheers
 
Are you referring to the increased yield from rent increases?

yeh, investors that hold property artificially via the $9bn tax bonanza will leave the market, cap values may go down a little but I couldnt care less. the main thing is rents will become reflective of the underlying asset, which should return to commercial rates. arguably more as outgoings are borne by the vendor. Rents now are artificially held low at about half of what they should be.

for my properties I couldnt care less about tax deductions, I want the income. so bring it on.
 
I agree with Ausprop.

If it happens, you'll see a huge price correction down to where it's a viable yield, over time. People who bought in the last few years will suffer large capital losses.

Government will then have to sink billions into public housing, so they're better off leaving NG as it is.
 
I thought CG is largely a function of OO wanting to buy into an area, not driven by investors? rent, however, will definitely shoot up the roof to cover the massive shortfall.
 
Does property investing NEED neg gearing to work? No. Because prices still went up in the olden days when we didn't have NG. It's just that if you change a major thing like NG or cap gains, you wrench the market into a new equilibrium. Things will eventually settle down, but it won't look like what it looks like now.

So if you cut NG, say, a lot of existing IP owners will sell, and the number of new investors will fall. Since rental demand is still increasing as people move out, form families, etc. rents will go up. It'll go up to the point where the increase in rent compensates for the loss of NG. When the rules change, some people win, some people lose. When they introduced the CG discount, for example, people who bought previously, in an environment where people paid full tax on CG benefitted. People who bought in the late 90s, where people expected high interest rates, benefitted when rates fell.

If they cut NG, it'll change the rules of the game, the market will reset to a new equilibrium. How will it affect us? Case by case.
Alex
 
I agree with feihong - OOs (including FHBs) are the ones who drive up prices. According to the ATO, only 10-11% of taxpayers are declaring rental income and claiming deductions. So if investors are only 10-11% of the tax-paying population, then how on earth can such a small proportion of property purchasers have such a large influence on demand as to push up prices???

Pollies don't want to touch negative gearing for several reasons:

1. Using ATO figures from 2005/06 F/Y, there was $17.6B of rental income declared, against $21.7B of deductions claimed, resulting in a shortfall of $4.1B. Given that there were about 20M people in Australia at the time, with roughly 30% of the population renting, this shortfall amounts to $667 per year per renter. Governments cannot possibly fund public housing for such a miniscule amount!

2. If negative gearing is abolished then, in the interests of fairness, it would have to be abolished for all investors - not just property investors. Those who have loans to purchase shares would also be caught up in this. The effect on the economy would be chaotic.

3. Pollies want to get themselves re-elected!!!

Cheers
LynnH
 
Actually, the paper was reasonably good, in that it was mostly focussed on the need for more houses, which is correct.

The removal of NG proposal was for existing dwellings only. Its unlikely because of the voter backlash from investors (or 'speculators' as YM would like us called).

In your case GoAnna it would be great, because you're +ve geared, so it would push up rents and put more money in your pocket.

Incidentally, does anyone really know what the Senate is for, or why we have it? It was much easier in the last Govt when the people we elected to govern could actually get on with the job. Maybe we can get rid of the senate when we get rid of the states...sorry, dreaming again.
 
Maybe we can get rid of the senate when we get rid of the states...sorry, dreaming again.


Great idea, tubs - but can you imagine politicians ever voting themselves out of a job???

(.... back to the thread .....)

Cheers
LynnH
 
So if you cut NG, say, a lot of existing IP owners will sell, and the number of new investors will fall.

Those existing IP owners have to sell to someone. The house they sell doesn't disappear - it remains in the pool of housing, either as a rental or as a PPOR. Rents won't rise immediately.

To avoid a drop in the number of new investors, the proposal is to remove NG only on existing housing. The NG reward for increasing the stock of housing by building on newly released land, or increasing density of existing dwellings, would remain.

The only thing to be removed would be the reward for investors trading existing housing, which contributes nothing to the housing stock or economy, only bidding up prices and diverting funds from productive uses.
 
Those existing IP owners have to sell to someone. The house they sell doesn't disappear - it remains in the pool of housing, either as a rental or as a PPOR. Rents won't rise immediately.

IF you assume the number of people looking for rentals doesn't increase. It does, as people form families, move out of their parents' homes, etc. There will be a decrease in the projects being BUILT, certainly being proposed. Supply will start decreasing a few months down the line. What happens when supply doesn't change, and demand keeps increasing?

To avoid a drop in the number of new investors, the proposal is to remove NG only on existing housing. The NG reward for increasing the stock of housing by building on newly released land, or increasing density of existing dwellings, would remain.

We don't lack newly released land, we lack new land with decent transport links. That won't change just because you axe NG. What we need is more investment in transport and infrastructure, either building better transport into the CBD or secondary CBDs.

The only thing to be removed would be the reward for investors trading existing housing, which contributes nothing to the housing stock or economy, only bidding up prices and diverting funds from productive uses.

Yeah, doesn't that suck? Too bad. No polly has the backbone to axe NG, because they can't handle the short term backlash. Even if they did, plenty of investors would go to the wall before me, and I'll be picking their properties from them at bargain prices. Life isn't fair. Have fun petitioning your local MP.
Alex
 
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