Negative gearing game
Oh what fun. The politicians are playing the negative gearing game again. By way of background – the Labor Party has announced one of their new policies will be to exclude existing property from negative gearing, allowing investors to claim tax deductions on new property exclusively.
Setting aside the fact that this stance was probably developed by the Labor Party’s media machine, our view is that the policy is doomed to create serious structural problems with one of Australia’s largest and best performing industries.
Two key problems we see are, firstly, that negative gearing for new properties will have unscrupulous project marketers rubbing their hands together with the thought of almost legitimate ways to fleece an unsuspecting general public. Secondly, anything that would cause such blatant imbalances in product type (new v existing) is obviously bound for trouble by skewing market supply and pricing.
The uprise of this issue demonstrates how little some decision makers know about the property market. If price increases were due to negative gearing alone, we would have experienced price increases in more areas than just Sydney and Melbourne over the last few years, or the timing of the upswings would be more consistent.
The true cause of the recent property price increase was due to a multiple range of factors (as usual), but a principle driver was public confidence in State government and their approach to infrastructure investment. This activity lifted investor confidence that property would deliver better returns than other asset classes.
If changes do need to be made to current legislation, we would support the idea of a $ cap perhaps on the amount an investor can claim via negative gearing, rather than a cap on the number of properties. To be workable, the cap should apply to the share market as well as other tax deductible items.
In this way, we would ensure home ownership is available to as many people as possible. This is one of the great features of our current market. The strong focus on home ownership keeps the market relatively stable.
Allowing negative gearing only on new property would have the effect of over-weighting that part of the market with investors, leading it to have similar qualities to the share market. And look how stable that market is at present.
If the truth is known, heavy hitters from the share market have probably played a large part in lobbying for the gearing changes. The rise of investors adding property to their self-managed super funds is really biting the share market. While share market dives are not good for anyone, perhaps if corporate performance and fund managers actually delivered, then investors would happily return.
It would also be great if politicians could get their jobs right, and not just play games to get media attention. I thought the whole idea of good governance was to create an environment for equality and prosperity. I also guess Bill thought he nothing to lose :-), and he doesn’t really care about the people his policies will effect.
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Crave Property Advisory is a unique property strategy and buyers agent service. As the only independent and unbiased advisory that can help you use any property strategy Australia-wide, Crave’s services extend to home, investment and commercial property. A highly client focused organization, Crave developed the Modular Investing System (MI System) to provide clients with the ability to use a tailored mix of strategies and efficiently build profitable portfolios that create lifetime income.
Debra Beck-Mewing is the CEO of Crave Property Advisory, and has more than 20 years’ experience in property investing, Australia-wide. She has used a range of strategies to build her property portfolio including renovating, granny flats, sub-division and development. Debra is skilled in identifying development opportunities, and sourcing properties that have multiple uses and multiple exit strategies. She is a Qualified Property Investment Advisor, licensed real estate agent and also holds a Bachelor of Commerce and Master of Business.
Disclaimer – This information is of a general nature only and does not constitute professional advice. We strongly recommend you seek your own professional advice in relation to your particular circumstances.