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Should negative gearing be repealed?
spin off....or adjusted?


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#1 I'm Batman

Posted 19 April 2012 - 02:53 PM

Since the other thread is closed down and there is an article on smh I thought I should ask...

http://smh.domain.com.au/blogs/talking-pro...0417-1x50i.html

Dr Chris Martin, a senior policy officer at the Tenants' Union of NSW, says bluntly: "There's a bunch of things that could be done to negative gearing that would go some way to changing what it currently does to our housing system, which is screw up house prices and distort the rental market to the disadvantage of low-income renters.

Edited by BabyJaguar, 19 April 2012 - 04:48 PM.


#2 JapNFeral

Posted 19 April 2012 - 03:11 PM

Over the years I have been a landlord and tenant. I have not seen any significant reduction in the price of property - either to buy or rent in fact its mostly headed north.

Yes, I think negative gearing advantages significantly those that can afford property and disadvantages those that can't without providing a lot more property to the market.

#3 follies

Posted 19 April 2012 - 03:11 PM

Yes, more so they have to make it more difficult for overseas investors to buy and maintain Australian Property.

Rent is meant to be calculated as a week is equal to .1% of the value of the property, negative gearing instead of ending the shortage has just inflated value of the homes.

#4 JECJEC

Posted 19 April 2012 - 03:17 PM

Depends what you mean by negative gearing and what you actually intend to repeal.

Are you specifically refering to making losses on property - and is that just residential or commercial.

Negative gearing doesn't just apply to property you can negatively gear a share portfolio. You can also make losses on a business - would they be impacted by the legislation? If you are in the business of buying and selling residential property or property development would it be OK to make a loss?

What mechanism would be used - losses are lost forever or quarenteed until profits are made?

But in a word no.

#5 BetteBoop

Posted 19 April 2012 - 03:18 PM

What "bunch of things" does Chris propose?  

I would be intrigued to know what expertise he has on the subject and how he knows how to fix the housing affordability problem when successive governments have tried and failed (including by removing negative gearing tax concessions) .

#6 JRA

Posted 19 April 2012 - 03:27 PM

I have to agree, I would love to see what is repealed.

Any person who is running a business can offset losses against income. That is normal.

Are you suggesting the cost of running an investment portfolio or a business should not be offset against the income from that?

I believe there are just as many experts who say the opposite.

I think there are also a hell of a lot of experts that feel the number of people who think they are going to make money out of making a loss are going to be sorely disappointed.

#7 red_squirrel

Posted 19 April 2012 - 03:30 PM

Yes I think so.

To paraphrase what I said in the other thread just before it got closed (nothing to do with other OPs topic).

I am a first home buyer - to be.
I can't buy a house because even though I have a sizeable deposit because a bank will only lend me so much. On nearly every property I have tried to buy in the last 6 years an investor has always come in with the last bid - just slightly higher than mine.

The price I was and am prepared to pay is always above market value (because I am desperate) but an investor always has more. They are able to borrow more because they use all their other interest only investments as backing. If the investors weren't there - I could buy a house.

When the paperwork goes through and the houses come up for rent they charge market rent - but this is almost nearly double what my mortgage repayments would have been! It's a lie that investors are providing cheap places for people to rent. If the investors would butt  out, the 'poor people' could buy the house for themselves.

Investors only drive up the prices of the lower rungs of property. Most of the houses in my suburb are rentals. Most of which have been acquired in the past 10 years. I am very bitter at the government doing forcing my family to live as I do.

I'll end my ranty mcrant now.

Negative gearing should only apply to new properties, not established houses.

#8 BetteBoop

Posted 19 April 2012 - 03:36 PM

red squirrel, I see your point but that's only looking at the effect on you.

What happens to people who don't have a deposit, can't afford to buy even if prices are more affordable or simply don't want a mortgage?

If investors leave the market in droves, if the price of houses drop then the laws of supply and demand suggest rents should skyrocket. The law of physics says for every action, there is an equal opposite reaction.

Doesn't that mean renters are subsidising your ability to buy? What do they get from the scenario?

#9 Canberra Chick

Posted 19 April 2012 - 03:41 PM

When I arrived here and heard about negative gearing for home loans i was astonished. It is plain that it drives up prices and makes it harder for owner occupiers to get on the first rung of the ladder of opportunity.*

*anyone see what I did there? Reference to the last person who suggested scrapping negative gearing for property owners...

#10 JRA

Posted 19 April 2012 - 03:42 PM

I think "let's cut negative gearing" is also overly simplistic.

What about the 50% reduction for cgt.

Generally if they cut negative gearing, one would think selling your own home would gain CGT. Would that be fairer? And without the 50% reduction.

#11 fairymagic

Posted 19 April 2012 - 03:47 PM

Negative gearing should only be repealed if the income you receive through rent is not made to be claimed as income!!

We own one rental property - newly built last year. Without being able to negative gear what we are allowed to, we would not be able to afford that rental property. Why should we be penalised because work hard and saved to buy a rental?? Im not an accountant and don't understand the ins and outs of how this does (or does not) affect potential home buyers and my guess would be, that the affect on home buyers varies between states so does not affect everyone in every state wanting to buy a home.

#12 Fluster

Posted 19 April 2012 - 03:50 PM

I believe it should be phased out, and the government should use the money it saves to build public housing.  CGT should also be abolished (although I admit I think a certain amount of investment income should be tax free for those on low and average wages - this includes bank interest, dividends, etc).

#13 JECJEC

Posted 19 April 2012 - 03:54 PM

QUOTE (Fluster @ 19/04/2012, 03:50 PM) <{POST_SNAPBACK}>
I believe it should be phased out, and the government should use the money it saves to build public housing. CGT should also be abolished (although I admit I think a certain amount of investment income should be tax free for those on low and average wages - this includes bank interest, dividends, etc).


If you abolish capital gains tax I would presume that there would be more property speculation not less.

Also investment income for low to average income earners is already taxed at low rates due to marginal tax rates - why would you make it tax free.

#14 rosiebird

Posted 19 April 2012 - 03:56 PM

QUOTE (red_squirrel @ 19/04/2012, 03:30 PM) <{POST_SNAPBACK}>
When the paperwork goes through and the houses come up for rent they charge market rent - but this is almost nearly double what my mortgage repayments would have been! It's a lie that investors are providing cheap places for people to rent. If the investors would butt  out, the 'poor people' could buy the house for themselves.


Pray tell me where I can buy an IP and charge rent at double the mortgage repayments. I really don't think that's true.


#15 Spring Chickadee

Posted 19 April 2012 - 04:07 PM

QUOTE
Pray tell me where I can buy an IP and charge rent at double the mortgage repayments. I really don't think that's true.


It's rare but possible. I have a friend who has a number of properties with rents at least double what the mortage is. They are usually in lower socio economic or regional areas and need quick renovations. there are some killer bargains out there in areas that already have a great rental yields and low vacancy rates.

My investment property rent is not double the mortgage repayments, but the rent does cover the interest only loan/agents fees/ expenses/ repairs with a decent amount of money to spare. It's been this way since the day my tennants went in. So essentially it's money IN my pocket each month from the start.

Edited by Spring Chickadee, 19 April 2012 - 04:11 PM.


#16 Guest_holy_j_*

Posted 19 April 2012 - 04:10 PM

Why would they repeal negative gearing? You take a risk with it, the risk that the capital gains will outweigh the accumulated losses when you sell the investment. If you are prepared to take the risk, what's wrong with that?

The report minimisation of income for tax purposes is only going to be a much as your marginal tax rate, advantage will be  a little higher if the losses take you down a tax bracket. Fail to see the problem here.

Edited by holy_j, 19 April 2012 - 04:12 PM.


#17 darcswan

Posted 19 April 2012 - 04:16 PM

QUOTE (red_squirrel @ 19/04/2012, 03:30 PM) <{POST_SNAPBACK}>
Yes I think so.

To paraphrase what I said in the other thread just before it got closed (nothing to do with other OPs topic).

I am a first home buyer - to be.
I can't buy a house because even though I have a sizeable deposit because a bank will only lend me so much. On nearly every property I have tried to buy in the last 6 years an investor has always come in with the last bid - just slightly higher than mine.

The price I was and am prepared to pay is always above market value (because I am desperate) but an investor always has more. They are able to borrow more because they use all their other interest only investments as backing. If the investors weren't there - I could buy a house.


If your scenario was true & the rental income is greater than the mortgage, then negative gearing wouldn't apply.  A change in legislation would not affect this scenario.  If you play your last sentence out and remove the ability to invest in real estate - you disadvantage those who are not able to obtain finance.

So really, the issue is you aren't able to borrow the amount you need to purchase.  That's not really anyone's 'fault' (if fault could be assigned).


I wonder if a change in the ability to use property losses as a tax deduction would actually change the price of real estate in Australia.  As has already been mentioned, using investment loss is not exclusive to property but there isn't the perception that other asset classes are artificially inflated.  So in short: property speculation might not decrease if you remove the ability to gear, because Aussies just love real estate.

I believe a great deal of current investment activity is from non-residents anyway...  


#18 KT1978

Posted 19 April 2012 - 04:20 PM

If rent is double the mortgage payment then it's not negatively geared.

I believe negative gearing on property as repealed once? I cant remember the details.

I'm not sure removing negative gearing wouldn't cause a whole other range of economic consequences in the short term, but long term it might work by making property cheaper than renting, encouraging people to buy, etc.

#19 red_squirrel

Posted 19 April 2012 - 04:21 PM

The rent is higher than MY mortgage repayment would be because I have a sizeable deposit. If I didn't have the deposit - the payment would clearly be much higher.

I don't know if the owner charges the higher rent because they only had a small deposit or it's what they can get away with - the rent charged to me seems as though they had 5-10% deposit.

So even though I have the larger deposit - the bank let's them borrow more because of other properties.

Edited by red_squirrel, 19 April 2012 - 04:22 PM.


#20 JRA

Posted 19 April 2012 - 04:22 PM

QUOTE
When the paperwork goes through and the houses come up for rent they charge market rent - but this is almost nearly double what my mortgage repayments would have been!


As has been said, therefore the property is not negatively geared.

The property is paying its way.

I think these sorts of statements highlight so much misinformation / lack of knowledge about what people are complaining about

Not to mention not the full mortgage payment (i.e. capital) is offset against income. So if the rent was twice what you were going to pay in mortgage the rent is probably three times what they are claiming so far far from negatively geared. Just a good investment for short term return

#21 JRA

Posted 19 April 2012 - 04:23 PM

QUOTE
I don't know if the owner charges the higher rent because they only had a small deposit or it's what they can get away with - the rent charged to me seems as though they had 5-10% deposit.


The rent you charge has nothing to do with what your deposit was, it has to do with what people will pay. Our IP is fully owned, we are not going to reduce the rent as we have no mortgage on it.

#22 Guest_holy_j_*

Posted 19 April 2012 - 04:27 PM

Incidentally, negative gearing is not limited to property either, so if negative gearing is repealed for property then you have to repeal for shares & other assets as well.

#23 red_squirrel

Posted 19 April 2012 - 04:31 PM

Ok - I stand corrected then. I guess my issue isn't the negative gearing but the bank's lending criteria.

Re - the whole investment property thing though, where does it end? Already most of the properties in my area are investment properties - even people on CL benefits have investment properties. Seems I'm the only one without one.

At what point does it all go pear-shaped? When there are no more capital gains -like now? or some other time.

#24 JRA

Posted 19 April 2012 - 04:34 PM

Req_squirrel: I am one who thinks it will go pear shaped, I think people have gone in thinking it will be everything for them, and over the long term it probably won't be.

I also think that there are too many who are too close to the bone for an IP and probably renters are losing out because landlords can't afford the maintenance.

People often think the  negative gearing makes it all worth while, but given so many people who have IPs are on incredibly low tax rates anyway, I doubt it is worth it.

I am not convinced people see it as a risky investment where as it is.

#25 WhatWouldBuffyDo?

Posted 19 April 2012 - 04:40 PM



In 20/30 years those couples who have had one, maybe two investment properties which they negative geared will be in a more secure financial position when they retire, and will not require, nor may even be eligible, for old-age pensions and other benefits.  SInce we are an aging population I think giving them some help now is not such a bad thing.

Yes, I know it's a simple view and finance and real estate may not work like that but that is my mother's situation at the moment.




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