Snapshot of the ripple: Henry Report & Negative gearing

[Gentle_Chief]

On Sunday (May 02) the Henry Tax Review report will be tabled. And what is the scenario analysis if Investment Negative Gearing is abolished as a Tax deduction.


- highly geared property investors will have to sell some of their stock (like those bought in Bondi for 1.2 million and renting for 650 pwk)
- neutral to positive investors will continue holding their IPs (does not affect their position)
- Increased supply of property will lead to some price reduction in the short term (maybe about 5% drop, in capitals mainly)
- rents will raise (about 10-15%) to make up the shortfall as investors will pass on the additional Bill (thanks to Henry) onto the tenants
- due to Rental inflation causing a systematic inflation, Interest rates will have to be raised again

Above are my view points of the scenario analysis.
Feel free to slice and dice.....

 

[Ausprop]

it seems like navel gazing to predict what will happen from an event that will never take place. so to indulge, being a friday arvo and all.

yes there would be some selling and yields would rise as a result of both that and rents rising in $ terms. perhaps greater investment in PPORs given they are tax free, for now, (could change too).

if the cGT reduction is abolsihed and interest taxed concesionally there could be a flight from stocks and property to cash. this will give the banks more funds to lend out to... property buyers.

 

[urbanprospector]

rents can only rise to a level people are willing to pay . only way i see yields going up is if house prices fall . wages are not rising in fact many working a lot less hours so wages in those terms have fallen. couple this with other daily increases in living costs .i'm expecting to see a lot of trouble with rent defaulters . expect rates to keep increasing .

 

[Aaron Sice]

Rents Will Rise Until Pollies Put Rental Caps In Place.

Until Then, Bend Over And Take It.

 

[Ausprop]

i reckon rents are so inadequately low that it is creating a problematic reallocation of resources in this country. I agree that it would be bend over, else go live in a cardboard box. (and yeh yeh Iknow the arguments about going and sleeping on your mums couch or sharing withmates, but seriously!)

 

[MichaelW]

wages are not rising in fact many working a lot less hours so wages in those terms have fallen.

Interesting, history suggest otherwise. In fact, long run history suggests wage inflation beats CPI by 1.35% pa:

Property valued properly

The average weekly wage for an adult male grew from "$4.35 for a working week of almost 50 hours, which after inflation equates to $217.50", to "$830.00 for around 37 hours work, in far better conditions."

So salaries averaged annual growth of 1.35% over and above inflation.

And it appears from what I've been reading a lot recently that our return to full employment in the near term coupled with medium term demographic changes is likely to set off another wage inflation pressure cycle:

Human Capital article

The Australian population has continued to experience a trending rise in median age with the country continuing to develop a rapidly ageing population. This has a significant impact risk on the labour market as was originally predicted by McKinsey and Co more than 10 years ago in the "War for Talent" study. This issue will present a major challenge from a wage inflation perspective due to basic 101 economic rule of 'supply and demand' as Australia returns to near full employment.

Ah well, maybe wage price inflation isn't as big a risk as I have read.

Cheers,
Michael

 

[HiEquity]

rents can only rise to a level people are willing to pay . only way i see yields going up is if house prices fall . wages are not rising in fact many working a lot less hours so wages in those terms have fallen. couple this with other daily increases in living costs .i'm expecting to see a lot of trouble with rent defaulters . expect rates to keep increasing .

If current house prices are just causing "affordability stress" for FHBs then renters must be very unstressed at their rent levels by comparison.

Seriously, with the vast majority of household rents in our capitals below $20 per room per night, there is a long way to go up yet for rents... especially if you use a ratio of one room per either one adult or two children.

 

[urbanprospector]

Interesting, history suggest otherwise. In fact, long run history suggests wage inflation beats CPI by 1.35% pa:

Property valued properly



And it appears from what I've been reading a lot recently that our return to full employment in the near term coupled with medium term demographic changes is likely to set off another wage inflation pressure cycle:

Human Capital article



Ah well, maybe wage price inflation isn't as big a risk as I have read.

Cheers,
Michael

cpi aint the inflation rate its a farce.

as for the rent prices . going on the increased vacancy rate .put them up at your peril.
.

hate to say this but all i see on this forum is posts sprouting the main stream news or worse still some body or group with a vested interest in houses selling or going up. then calling it news or research .

you lot are more biased towards your investment than the radical gold bugs i chat to also .

now that is an interesting point houses priced in bullion .
houses in the usa for one have gone from a lofty 600 oz per house to 150 oz in 10 years .still to high for people in the usa to be able to afford .

the same is starting to take place here now and the next leg down in the world ecconomy just starting to kick up its heals

 

[urbanprospector]

If current house prices are just causing "affordability stress" for FHBs then renters must be very unstressed at their rent levels by comparison.

Seriously, with the vast majority of household rents in our capitals below $20 per room per night, there is a long way to go up yet for rents... especially if you use a ratio of one room per either one adult or two children.

i sold in 2008 got 90k more than the a place in same group of villa.s scarborough bch perth got 2 months ago . oh since then has been rezoned from 16 villa's to 57 units offering ocean views. yep prices still off 90k . remember this is an actual sale . not some figure plucked out of distorted facts .i still own outright land in qld . but right now i live in a suburb in perth 4 km to city on the good side .median price over 1 mill .
4 bed house 250 a week . cracks me up my g/f who shares with me rent her melb dog box out at 385 for 2 beds .

 

[VYBerlinaV8]

If current house prices are just causing "affordability stress" for FHBs then renters must be very unstressed at their rent levels by comparison.

Seriously, with the vast majority of household rents in our capitals below $20 per room per night, there is a long way to go up yet for rents... especially if you use a ratio of one room per either one adult or two children.

Well said - my thoughts exactly. One of the reasons I'm not so worried about a short term correction is because I think rents will continue to rise.

 

[BayView]

4 bed house 250 a week . cracks me up my g/f who shares with me rent her melb dog box out at 385 for 2 beds .

But this is the case in every market in the world.

It's all about location and demand.

I can rent a 3 bed house in Donald, Central Victoria for about $115 per week, but I wouldn't live there.

http://www.realestate.com.au/listse...listprice=&listprice=&search.x=30&search.y=28

We lived in a one bed apartment in L.A which was $2200 per month. That's $507 p/wk.

Perth has a different set up to Melb and is a long way away.

I remember staying at the Burswood Casino and had to drive into the CBD in peak hour. We allowed 30 mins, but it took me about 8 minutes. Try doing that in Melb from the same distance away during peak hour.

You can't really compare the two.

Back to the topic;

if neg gearing is abolished (again) there will be a lot of investors selling up who are close to the bone with cashflow and who need the tax breaks.

For the ones who are doin' ok cashflow wise, they will keep 'em.

The Gubbmint might re-introduce it again, but after the last attempt at it - which was a disaster - I'd doubt it.

 

[urbanprospector]

But this is the case in every market in the world.

It's all about location and demand.

I can rent a 3 bed house in Donald, Central Victoria for about $115 per week, but I wouldn't live there.

http://www.realestate.com.au/listse...listprice=&listprice=&search.x=30&search.y=28

We lived in a one bed apartment in L.A which was $2200 per month. That's $507 p/wk.

Perth has a different set up to Melb and is a long way away.

I remember staying at the Burswood Casino and had to drive into the CBD in peak hour. We allowed 30 mins, but it took me about 8 minutes. Try doing that in Melb from the same distance away during peak hour.

You can't really compare the two.

Back to the topic;

if neg gearing is abolished (again) there will be a lot of investors selling up who are close to the bone with cashflow and who need the tax breaks.

For the ones who are doin' ok cashflow wise, they will keep 'em.

The Gubbmint might re-introduce it again, but after the last attempt at it - which was a disaster - I'd doubt it.

try the otherside of town mt lawley .. horrible place to live .takes mins to the city and not to long to get to the ocean or river too

used to take 15 mins from brunswick east on a tram

 

[MTR]

I am more concerned about the 40% additional tax that mining companies will most likely incur and how this will impact on our economy, ie loss of jobs, expansions not going ahead hurting small business. Just as Oz as our resource sector is starting to power ahead it may turn into a fizzer.

 

[urbanprospector]

But this is the case in every market in the world.

It's all about location and demand.

I can rent a 3 bed house in Donald, Central Victoria for about $115 per week, but I wouldn't live there.

http://www.realestate.com.au/listse...listprice=&listprice=&search.x=30&search.y=28

We lived in a one bed apartment in L.A which was $2200 per month. That's $507 p/wk.

Perth has a different set up to Melb and is a long way away.

I remember staying at the Burswood Casino and had to drive into the CBD in peak hour. We allowed 30 mins, but it took me about 8 minutes. Try doing that in Melb from the same distance away during peak hour.

You can't really compare the two.

Back to the topic;

if neg gearing is abolished (again) there will be a lot of investors selling up who are close to the bone with cashflow and who need the tax breaks.

For the ones who are doin' ok cashflow wise, they will keep 'em.

The Gubbmint might re-introduce it again, but after the last attempt at it - which was a disaster - I'd doubt it.

p.s. the house we rent to live in worth 30% more than the one rented in melb.

both properties takes 15 mins on public trans to city centre . same distance infact

from here on in the costs associated with owning property are going up ..
the gov wants its hand outs back with interest . just like every other time .
swan
even warned of this recently