Forums / Property Investing / General Property / The figures may be true….. but the message can certainly be skewed !

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  • Profile photo of BennyBenny
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    @benny
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    Post Count: 1,366

    Hi all,
    I caught Jason’s tweet re “Negative Gearing” and his reference to the Project and their take on things.
    http://www.smh.com.au/entertainment/tv-and-radio/the-projects-waleed-aly-is-in-no-mood-to-attend-malcolm-turnbulls-negative-gearing-party-20160427-goglur.html
    It seems Mr Aly is in favour of seeing a change to negative gearing – and, OK, I am not totally against some “tweaking” of the current laws – but NOT without a whole lot of discussion BEFORE any changes get made. Otherwise we end up “back to the future” in 1985/86 over again with a law being changed, then hurriedly repealed (and sweeteners added) to get investors back onside again after rentals became difficult to find because most of the investors had bailed !!

    Too many laws are changed that “seem like a good idea” but end up with a boatload of unintended consequences that didn’t happen to be considered ahead of the change. Like the NCCP !!

    Anyway, back to Waleed Aly and the “Top 10 Rental Loss suburbs” mentioned. Their picture shows the “The Top 10 electorates that claim the highest average losses through negative gearing”. It shows Wentworth at the top with $20k average loss down to Ryan with around $15k average loss. All 10 are Liberal seats (how convenient) and the MP’s name is alongside each electorate.

    So, OK, Wentworth has an average $20k rental loss. Without checking, I’d probably be able to deduce that Wentworth probably has a median value of $1.5m or more, with a rent return of 2% or worse – an immediate negative gearer for sure, IF one was investing that way. MOST investors I know would NOT be investing in this kind of property – but there has to be at least one to provide them with these figures – and maybe a high salary (like a politician’s) allows them to be able to make such an investment without losing sleep at night.

    What is NOT mentioned by the Project is that the $20k loss is NOT the cheque that an investor gets back – that would likely be 40% at best, depending – so an $8k return is MAXIMUM from that loss. The other $12k or more is going to a Bank as Interest (enabling others to get loans?), or a RE agent (paying for staff for Property Management), or State Revenue Offices in various taxes and Duties, or maintenance (employing tradies). All the while, they are also providing a home for someone who can’t yet afford to buy THERE (but who might themselves have a couple of rentals in more average areas thus enabling them to afford the rent in Wentworth).

    And PLEASE don’t believe all of the hype about Australia being the most expensive country for housing. Like in this example, figures are chosen that might be accurate, but they are then (like here) mis-applied to paint a way more gloomy picture than they should be doing. From Aly’s own words “Right now, when you want to buy your first home, the cost of the average house is roughly 4.3 times household income”. Which is pretty do-able, yeah? Back in the 50’s and 60’s that figure bobbled around 3 to 4…. But now, it takes two people working mostly to be able to “buy the average house”. Um, yeah, so what? If the modern family has two people working, and they can afford the average home, good on them.

    Who says a first home should be an “average home”? Mine certainly wasn’t – and many from my era were the same – in many couples’ earliest days, they can’t afford a new car, and a new lounge suite, bedroom suite, an average house, etc. Today, it is almost as though a couple believe they should START OUT in a 4bd 2ba 2ga house, brand new, with a home theatre as well, and a brace of SUV’s (brand-new too).

    Forgive me if I think the Project might be getting things a little wrong here. What is wrong in waiting to buy all that you want, rather than “having it all as you start out, but struggling to pay for it all?”

    What say you though? Am I off-base, or has the Project got it at least a little wrong here? Let’s hear it !! ;)

    What about the old chestnut “Too many investors are pushing up house prices, making it impossible for my children to buy their first home….” In my book, no investors I know are looking to pay “over the odds” to buy a house. They are the ones who are paying LESS than most home buyers, so are not such a problem as is made out, surely…. But Overseas buyers – well, that is another story….

    Benny

    Profile photo of BrettBrett
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    @jimchap131
    Join Date: 2013
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    End of the day the only people that will be negatively affected from a drop in property prices are property speculators; if you own your own home and the market tanks then if you move yes you will get less for your place but everywhere else will have tanked as well, making it a net even result. If you speculate on an investment for the sole purpose of making capital gains you are hardly investing.. Much better for the country to have lower house prices over the long term and encourage investment in other areas.

    Profile photo of BennyBenny
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    @benny
    Join Date: 2002
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    Now THIS bloke makes some sense !!
    http://www.theage.com.au/comment/neative-gearing-isnt-the-bad-guy-in-the-housing-debate-20160427-gog59a.html

    Bill Shorten should have a good read of it before continuing on with his plan to “Axe negative gearing”.

    And Brett, I actually agree with most of what you are saying. Only problem I have is that a “lowering of prices of housing” is only a small part of the likely outcomes if this goes ahead. The problems I see are a MASSIVE distortion of the market that leads to fifty other “unexpected results”.

    Much more discussion is required before coming out with such a huge change. What do you think of the linked comments above?

    Benny

    Profile photo of Corey BattCorey Batt
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    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    The Project’s slant is to base it on populist rabble raising arguments – which in Australia generally has a sprinkling of anti wealth, tall poppy syndrome for good measure. I wouldn’t be too concerned about the heavily biased pot shots from members on the show.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of BrettBrett
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    @jimchap131
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    Post Count: 22

    Hi Benny.

    The only point I would challenge is that negative gearing increases housing supply, Most major residential developments are sold off the plan or sold after completion, from my understanding the majority of negative gearing occurs on established properties.

    Profile photo of BennyBenny
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    @benny
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    Hi Brett,

    The only point I would challenge is that negative gearing increases housing supply,

    I agree with you – negative gearing on its own does nothing to the housing supply. But it does affect the ratio of available rental properties from that total supply. Many have been lured into investing in rental properties BECAUSE of the promise of “Having the tenant and the Taxman pay off the place for you – look, after your Tax refunds, this property puts $10 in your pocket, AND you get the equity growth over time too.”

    And, if the law were suddenly changed, watch out. Really, that is the thrust of my message above. Having the Project painting such a false impression does no-one any good.

    Most major residential developments are sold off the plan or sold after completion, from my understanding the majority of negative gearing occurs on established properties.

    The first part is a given (except for perhaps a small number that are never sold…) so no argument there. They are either sold before they are built, or after they are built. Yep, I agree !!! :p

    With that second part, I can’t agree or disagree as I have no figures that support one side or the other. Suffice to say that my beef is with the Project for peddling misinformation that could influence people to vote for a party that has a damaging piece of legislation as their election promise – get rid of Negative Gearing except for new properties.

    There should be WAY MORE THOUGHT GIVEN before implementing such a piece of legislation IMHO,

    Benny

    Profile photo of PimobpiPimobpi
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    @pimobpi
    Join Date: 2013
    Post Count: 60

    Hi Brett,

    I feel that if NG changes are made, it will be a loss for both:
    a) the home buyer who became an investor &
    b) the future hopeful home buyer.
    I feel this way because there is at least one other dimension to this problem that is never discussed………………although its presence is not hidden from view & has always proved prosperous.

    Changes to NG without seriously looking into all possible outcomes is very careless & irresponsible.

    Policy tweaks may temporarily create a different outcome but tweaks also attract the “game changers” & encourage them to re-organise & snap the system back into its original momentum (which always ends up advantageous for the wealthy). The difference here is that the “wealthy” are not affected if NG changes are made or not. The only 2 affected groups are:
    a) home owners, that have since became investors, that are now risking very much to become wealthy &
    b) hopeful home buyers, that want a home & then most likely want to be an investor and take risks to hopefully one day become wealthy.

    We are really the same group of people at different stages in our lives however there is resentment towards investors. It is an “us or them” mentality designed to give the illusion that only one or the other is to gain. The reality is that it is a closed circuit & both symbiont’s gain off each other. There are circuits everywhere – Renters are valued customers of property owners & those very same property owners are the valued customers of banks and so on.

    Eventually the people/organisations that have the power to snap systems back into place which continually put the true wealthy at an advantage will do so accordingly (no matter what policy changes are made) & the ones who suffer the most from this “snap back” are the ones who are least able to bounce back from the initial strain & loss ie: group b) trying to buy their 1st home.

    The rich get richer when – group a) is impacted & investing stops & therefore group b) cannot ever promote – the poor get poorer.

    Remember, the wealthy are who hire & fire. They are neither good or bad, they are both & they never lose. Changing policy does not change this system for the better, it can only get worse.

    I hope I’m not making people feel like I am referring to a conspiracy or anything weird like that. I just see this as an obvious truth to life that’s not discussed very much.

    Cheers.

    • This reply was modified 3 years, 3 months ago by Profile photo of Pimobpi Pimobpi.
    Profile photo of BennyBenny
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    @benny
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    I thought this topic was worth a re-visit, as its subject matter was widely reported over the last few weeks (as the election loomed).

    Here we are three years later – and (fortunately, imho) the changes discussed above won’t be taking place as Labor was roundly trounced at the 2019 election. Seems not many voters wanted:-
    1. Labor to cut CG discounting in half (meaning we pay more Tax on any CG’s)
    2. Not too many people were impressed by their intent to take away Franking Credit Imputation, effectively giving a “wage reduction” to many self-funded retirees (while touting that “the big end of town were to be hit”).
    3. Negative gearing to be applicable ONLY to new properties in future (but any existing NG properties could remain that way until sold – but with a likely value drop at that time)
    4. Labor to look to mandate usage of electric cars to be at 50% within a few years (say wha? – like, who charges them overnight – the solar panels? :p ). Never mind that existing vehicle’s values would plummet – and, how does one charge an electric car while on the Nullarbor for example?
    5. Labor to legislate for 50% renewables by 2030 (South Australia can tell us what a GREAT idea that has been).
    6. Greens threatening to stop ALL coal mining (I know – they aren’t in power, but their Senate seats would help Labor to govern, so a bit of arm twisting is likely, yeah?). What happens once a $60bn per annum income to Australia goes away? Not to mention the only reliable power sources apart from a few gas power plants also going away.
    7. A threat to jobs with the stopping of coal mining (another Green initiative?) – sure, they will retrain everyone to work in renewable industries (but I wonder at the validity of that statement – it is right up there with “renewable power is cheaper than coal-fired power!”)
    8. Labor refused to tell the country the COST of implementing some of these wild schemes ahead of the election. So guess what?

    The voters weren’t convinced, so now we have at least another 3 years to get a few more wrinkles ironed out before the next election. Whew, that could’ve been close.

    Benny

    Profile photo of BennyBenny
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    @benny
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    On a re-read, it was THIS final comment from that earliest linked article that holds the truth about negative gearing, and the likely result of its removal if implemented with little thought:-

    Major changes to negative gearing will make housing investment less attractive. This will, in turn, impact housing supply – and we will return to the bad old days, when supply did not keep up with demand.

    If we want to make housing more affordable in our country, we must tackle the blockages to supply and not impose new ones. Proposed changes to negative gearing and capital gains tax will make a bad situation even worse.

    As always, supply vs demand holds the key to price. If something is scarce, its cost goes up. Force investors out of the market and even fewer homes will be built.

    New couples or youngsters leaving home CAN’T always afford to buy a place – they must rent – so who provides the rentals? According to the article, tens of thousands of ordinary people – doctors, nurses, school-teachers, firemen, tow-truck drivers, sales staff, etc. Most landlords are NOT from the “big end of town” either.

    By all means, look at the option of removing negative gearing if you must, but DO think it through first – don’t just implement it without a WHOLE LOT of discussion and consideration. Unintended consequences live in such hiding places, ready to pounce when due diligence ahead of a law change doesn’t take place !!

    Benny

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