I am considering expanding my portfolio and was weighing up the risks. How much of a risk do you think there is of negative gearing being scaled back or abolished altogether? What would happen to property prices and rents should this occur? I do know that it happened in the 80's, but this was before my time.
Will negative gearing ever be abolished again?
- Thread starter HappyCamper
- Start date
unfortunately I dont think it will be abolished again. If it were we might see some decent yields on resi properties... until then it is a yield basket case, good for capital growth (hopefully) only. The collapse of the agri / tree schemes that ignored yield and chased tax deductions for a hopeful capital gain holds lesons for all other asset classes.
Never say never, but I doubt it will be back anytime soon. It is possible that they'll mandate that losses must be confined to that asset class until the become profitable.
I don't remember it first hand, but I believe that last time property prices dropped substantially. At the same time rents went up. Essentially investors exited the market as they no longer benefited from their losses. The ones who stayed put their rents up to become profitable, which was also influenced by the lowered supply on the investment side.
The public outcry was so loud that they reversed it rather quickly.
About the same time, the US did the a similar thing with their tax laws. The difference is that the government dug its heals in and held on.
I don't remember it first hand, but I believe that last time property prices dropped substantially. At the same time rents went up. Essentially investors exited the market as they no longer benefited from their losses. The ones who stayed put their rents up to become profitable, which was also influenced by the lowered supply on the investment side.
The public outcry was so loud that they reversed it rather quickly.
About the same time, the US did the a similar thing with their tax laws. The difference is that the government dug its heals in and held on.
garbage,
Try doing a search for negative gearing. Been discussed at length before.
Here's a thread to start you off: http://www.somersoft.com/forums/showthread.php?t=43809
Try doing a search for negative gearing. Been discussed at length before.
Here's a thread to start you off: http://www.somersoft.com/forums/showthread.php?t=43809
Sorry, what do you mean by that?
If you're loosing money because your property portfolio is making a loss (either real or a paper loss), those losses can't be claimed against your personal income. Instead they are deferred until the portfolio makes a profit and then offset against that profit.
In my view, when negative gearing was abolished in the 80s it caused an exit of a lot of residential property investors. This in itself wasn't such a problem, but it severely reduced the number of rentals on the market and pushed up rents accordingly
Amongst this time the government had also sold many of their own housing commission houses creating even less available. In those days they were all into privatisation, but the end result was the reintroduction of negative gearing in order to encourage investors back into housing.
I doubt they will abolish it again.
Amongst this time the government had also sold many of their own housing commission houses creating even less available. In those days they were all into privatisation, but the end result was the reintroduction of negative gearing in order to encourage investors back into housing.
I doubt they will abolish it again.
Thats not a view, its a fact. Residential property was a less attractive investment and investors put their money elsewhere.
This is what happened in the 1980s - losses were not allowed to be offset against other income but could be carried forward and recouped from profits before profits became taxable.
There were several unique factors in the 1980s - the share market was booming which soaked up a lot of money, and a fair bit of gentrification was going on in Sydney which reduced rentals available. Not sure of extact time lines, but I think properties were starting to be resumed for the planned (or hoped for) Sydney Olympics?
Anyway, there was a dramatic reduction in rentals available in Sydney (the other states were less affected) which pushed rental prices higher. This also was made worse by most states downgrading their public housing stocks.
We owned IPs during this time. I am fairly sure that negatively geared IPs at the time NG was abolished were able to continue unchanged - i.e., the new arrangement only applied to IPs purchased after that date.
When negative gearing was re-introduced, it was packaged with the capital gains tax. CGT has raised more than was ever dreamed of. I am cynical enough to think that this was the grand plan all along......
Will it happen again? Possibly. But as in the 1980s, I would think that existing arrangements would continue and changes only apply to IPs purchased (or PPORs changed to IPs) after the introduction date.
Marg
I wrote it as a view incase someone "pushed" me for the facts, which I don't have, I only have my experience and whats left of my memory
I find it hilarious each year when the ATO publish the 'cost' of negative gearing, which is something along the lines of a few billion in net income tax deductions and reduced CGT.
Nobody ever mentions the land tax and stamp duty that investors pay! The fact that they're paid to the state and income tax is federal is irrelevant, as Canberra bankrolls the states in any case.
My very simple way of looking at it is that the average stamp duty in Melbourne is about $20k, on a 500k investment property. Assuming the investor pays tax at 31.5%, they'd need deductions of $63,500 before they've made back the stamp duty alone.
As for concessional CGT rates, investment property enjoys exactly the same CGT regime as any other asset class such as shares.
When I moved to Australia 5 years ago I was really surprised by negative gearing as I believe it distorts the housing marked considerably. However, it's a bit like driving on the left side of the road, whether you like it ir not, we're stuck with it, as changing it now would have too big a structural impact on the economy....and no pollie is stupid enough to get on the wrong side of close to 1m landlords!
Cheers
Jonathon
Nobody ever mentions the land tax and stamp duty that investors pay! The fact that they're paid to the state and income tax is federal is irrelevant, as Canberra bankrolls the states in any case.
My very simple way of looking at it is that the average stamp duty in Melbourne is about $20k, on a 500k investment property. Assuming the investor pays tax at 31.5%, they'd need deductions of $63,500 before they've made back the stamp duty alone.
As for concessional CGT rates, investment property enjoys exactly the same CGT regime as any other asset class such as shares.
When I moved to Australia 5 years ago I was really surprised by negative gearing as I believe it distorts the housing marked considerably. However, it's a bit like driving on the left side of the road, whether you like it ir not, we're stuck with it, as changing it now would have too big a structural impact on the economy....and no pollie is stupid enough to get on the wrong side of close to 1m landlords!
Cheers
Jonathon
Pollies do stupid things. Look what they did in NSW a few years back with the 'vendors exit tax'. Mind you that was a state government rather than the feds. When the coffers are empty you can bet they will change something to help refill them.
Getting rid of the uniquely Australian price distortion policy of negative gearing would be a good move in many ways. The "higher rents/less social housing" argument is a myth and doesn't hold water.
It would even benefit investors in the long run due to the lower cost of property that would result.
But I doubt it will happen due to the vested interest (/corruption) of politicians required to make such a change.
It would even benefit investors in the long run due to the lower cost of property that would result.
But I doubt it will happen due to the vested interest (/corruption) of politicians required to make such a change.
It's a bit like asking whether the govt is going to stop businesses writing off their losses against their other sources of income. They could do this in the short term but it couldn't last - the long term impacts as the economy adjusts would be horrendous.
I agree NG is responsible for staggeringly low rents in Australia. If it was removed there is only one way for rents (and the CPI as a result) to go and I don't think any government really wants the tenants of the nation to pay the true cost of housing...
Much better to let Joe Public think life is meant to be easy - just like they do with water and electricity prices and other forms of social welfare / price control masquerading as service provision...
If they want to win an election that is and that's what our political system revolves around...
I agree NG is responsible for staggeringly low rents in Australia. If it was removed there is only one way for rents (and the CPI as a result) to go and I don't think any government really wants the tenants of the nation to pay the true cost of housing...
Much better to let Joe Public think life is meant to be easy - just like they do with water and electricity prices and other forms of social welfare / price control masquerading as service provision...
If they want to win an election that is and that's what our political system revolves around...
Perhaps if we had a max of a 5 year term for parliament, they could change it in the first term of a new parliament and 5 years later it's history, much like the way Gordon Brown ripped off UK pensioners in his first budget by removing their tax imputation credit on dividends.
But with our 3 year federal terms it's just too soon in peoples' minds to make such a major change.
But with our 3 year federal terms it's just too soon in peoples' minds to make such a major change.
Rents are not "staggeringly low", and I fail to see how NG could affect them.
Negative gearing pushes up property prices, but does not push rents down.
There's still the same number of people, and the same number of properties. Some renters may become owners - fewer renters, fewer rental properties, but the supply demand ratio remains balanced.
Well they are staggeringly low if you look at the average rental yield being traditionally around 5% in Australia.
NG attracts investors into the market (for tax reasons obviously, amonst others). When NG was removed, investors sold out of their properties big time. Fewer properties available to rent, much the same demand, rents skyrocketed.....all history.
Yes, I agree you could make an argument for that, as NG stimulates investor demand and any demand with restricted supply leads to increased prices.
If you use the same argument, it must. Investor purchases leads to more rental property supply and lower rental prices.
This is where your logic is flawed. There are NOT the same number fo people and there are NOT the same number of properties. There are more and more people (Australia's population is growing - both organically and from immigration) and less and less housing being produced for them. This is why both prices for property (lower quartile at present) and rents are increasing.
How can you say it is a myth, Joe?
A Spanish philosopher, George Santayana, once said "those who ignore the lessons of history are condemned to repeat them."
How would abolishing NG effect new development?
When Paul keating abolished NG in 1985 new housing construction plummeted and rents rose by 37% nationally.
There is nothing for rents to do but increase when the demand is more than the supply.Negative gearing is an easy method for the government to ensure low cost housing. If investors arent supplying the houses for renters...then who?
How much would it then cost the Government to supply housing to Australia's ever increasing population. If this were to happen in NSW it would be an absolute disaster. Can you not imagine the frenzy of rental bidding in Sydney? What about the $24 billion in property taxes paid into government coffers each year - not to mention the development charges paid to local councils.
Only a Fool walks the same dead-end path twice.
Regards JO
....rents rose by 37% nationally.
Mmm sounds good
Cash flow+++ may be not as bad we think....
