All Topics / General Property / The End Of Negative Gearing?

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  • Profile photo of Steve McKnightSteve McKnight
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    Let’s see if we can help Mr. Hockey decide whether to modify the current laws pertaining to negative gearing.

    What do you think… should a change be made, why or why not?

    You might be interested to read the Henry Review suggestions on changes to negative gearing.

    – Steve

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
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    Profile photo of JpcashflowJpcashflow
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    Hi Steve…

    It would not surprise me if this actually happened… The government is tight on funds, so they will do what they need to do.

    How will this effect the market? Not really sure… But the shock to investors who but property for tax purposes might get a rude awakenig.

    I think key to success to a low lvr on your portfolio. My rule on my investments is 50% lvr.

    Some might not agree but I can tell you this.. You will never see me stressing about my investments

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    Profile photo of Nigel KibelNigel Kibel
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    In 1984 Keating abolished negative gearing. The end result was the property market collapsed and they were forced to reintroduce it 12 months later. We need to encourage people to save there money, any attempt to change or remove negative gearing would be a disaster.

    • This reply was modified 8 years, 3 months ago by Profile photo of Nigel Kibel Nigel Kibel.

    Nigel Kibel | Property Know How
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    Profile photo of Steve McKnightSteve McKnight
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    Hey Nigel!

    Yes, the Hawke / Keating government tinkered with the rules and it caused a housing price correction.

    The article I linked to in my initial post discussed the impact and how the new recommendation should provide a different outcome.

    – Steve

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
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    Benny
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    Hi all,
    Whatever they end up doing, I trust they will take the time to “think things through” before introducing some radical change.

    The NCCP change introduced a couple of years back was an ill-thought-out change (IMHO). The major thing Govts need to consider is that changes may well be worthwhile to “stop people getting into trouble”, but any restrictive changes suddenly introduced can play havoc with those with skin in the game already. BOTH sides of an issue need to be considered before making wholesale changes. For those “in the game”, perhaps any change should be made non-retrospective, and even to take effect some years into the future – to allow time for those already committed to change direction.

    I trust the Libs will be a wee bit more circumspect than Labor have tended to be over time. Tony Abbott’s catch-phrase “First, do no harm” holds a measure of hope here. If he stands by those words, I would think any changes will be of value, even if unwelcome for some.

    Benny

    • This reply was modified 8 years, 3 months ago by  Benny.
    Profile photo of xdrewxdrew
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    Lets read the article as it actually stands.

    The issue is that housing is not FAIR to low income tenancies and disadvantaged households.

    Yes .. i can tell you from an earlier part of my existance .. when you aint got it .. it sucks paying rent and trying to make ends meet when you only have a pittance left over.

    However you have to confront the issues that are outstanding in the market.

    First one is actually very simple .. you have a market of limited supply proportionate to demand .. hence the reason for increased pricing.
    The concern raised by the ATO recommendations is that the system is not being FAIR.

    Actually the problem is more concise .. the problem is that the system is being VERY fair.
    If you have money .. and you are anyone (be it black white hispanic japanese jew bahai hindi) .. you can invest in property and get something out of it in the longer term .. whether negatively geared or not.

    Negative Gearing not only benefits the tax outcome for the affluent person concerned .. but for the renter who gets a great deal at up to 5% of the assessed property value. As I have stated previously .. the historic rent/asset ratio is closer to 10% of property price. I bet if the rents were raised to those levels .. renters would be panicky !

    No .. the real issue that isnt being raised here is the one that should be mentioned frequently .. that its the lack of supply that is driving up rental demand and as such .. property prices.

    Nice and easy summary : We dont have enough properties because we dont have proper incentives to get real developers into this country to produce large scale projects to satisfy longer term demand and future effective growth plans.

    To verify my point .. the top end of Toorak prices caps off nicely at around the 20 million mark. If this was a town with more affluence in it .. those prices could be as high as 45 million for exactly the same properties.

    We wont be building stratospherically .. we will be countermatching demand with value and area attractiveness.

    To produce FAIR housing .. you’ll end up with dirty neglected property (no gearing incentive for maintainence) outcomes in areas basically no-one wants to live in. In other words .. SLUMS.

    So next time someone produces a document saying how fair housing should be .. just show them this paragraph and let them understand what social outcomes are going to be at play.

    You wont end up with better property .. better deals .. or safer neighbourhoods as a result.
    You will get precisely the opposite.

    To make my point .. google the TOWER OF DAVID in Venezuela .. where everything is fair and shutup if its not.

    Profile photo of xdrewxdrew
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    Negative gearing is often used to cite a class war .. in other words the rich MUST be getting richer from all this negative gearing benefit and the poor must be paying too much for their rental outcomes from rich greedy landlords.

    Its a nice way of saying I CANT COUNT AND I AM NOT PREPARED TO COUNT TO VALIDATE MY STATEMENT.

    You can graph it you can cite various biased studies .. but what you eventually find out is the system as it stands isnt too bad.

    Usually you would find that in a stable economy with reasonable incentives .. when the opportunity arises .. the money would be delisted (realised) from the property asset and recompiled into other ventures that may benefit the wider community such as small business .. stock investment or just a capital spending.

    However in an unstable economy people tighten up because there isnt any direction to push their money into that would be of greater benefit. So no small biz .. no stock dividends and no money spent flirtatiously on a new spring clothing
    It means that there is a lot of property with a lot of ‘stastistical’ wealth just sitting on the sidelines waiting for that moment of activity to take place.

    And if I was the ATO .. I would be more worried about why over the last 30 years .. its been piling into property and not much else.

    And if I was a property owner .. i would also be realising that the ATO and govt is now looking at the ‘statistical’ property wealth and rubbing their hands together in anticipation.

    Something to consider.

    Profile photo of Steve McKnightSteve McKnight
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    I believe the laws pertaining to negative gearing are too generous.

    I would like to see some or all of the loss over expenses carried forward and offset against future capital growth rather than immediately against income.

    Otherwise, provide a gradual phasing in of a CGT discount per year a property is owned (up to 50%).

    – Steve

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
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    Profile photo of Nigel KibelNigel Kibel
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    The other thing would be to have capital gains tax removed once you have owed the property for a certain number of years. That way we could encourage long term investing and help to provide for peoples retirement.

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    Profile photo of TheFinanceShopTheFinanceShop
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    Boy do I hate capital gains tax. Its pure evil.

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    Profile photo of JonJon
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    No mention about negative gearing in budget unless my live feed missed something?!

    Profile photo of BennyteeBennytee
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    The other thing would be to have capital gains tax removed once you have owed the property for a certain number of years. That way we could encourage long term investing and help to provide for peoples retirement.

    Good point Nigel, Capital gains tax on property was brought in around the same time as negative gearing(circa 1985), perhaps to counter the lower revenue the government received as a result of allowing negative gearing.
    If they get rid of one they should get rid of the other.

    Profile photo of BennyteeBennytee
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    Boy do I hate capital gains tax. Its pure evil.

    I am playing devils advocate here, I believe Capital gains tax actually helps keep our property market stable during GFC like events, it stops investors panic selling their IPs & therefore flooding market.
    I guess the pain associated in handing over vast sums of money in the form of Cap gains tax, encourages people to take a wait & see approach. food for thought

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