ALP Proposed neg gearing changes

Hi,

Please see below. I think it's easy to keep barking about it, but I doubt it will come to fruition though.

Shorten unveils Labor election policy: No more negative gearing for existing homes

 

Given ScoMo is also looking at negative gearing, I think there will be some changes in negative gearing soon

 

Thanks for the link, jins13.

I think you're right, imbi3, quote from the article below..

"After a rise in the GST was taken off the table this week, Treasurer Scott Morrison is also understood to be considering changes to negative gearing and superannuation tax breaks".

I wish both major parties would put first priority on closing the loopholes on multinationals that pay no tax tax first. That would deliver massive massive windfall for the budget shortfall.....

Out of 1539 of Australia's largest corporations 38% paid no tax in 2013/14.

 

These articles will disappear when the downturn comes around.

 

[QUOTE
I wish both major parties would put first priority on closing the loopholes on multinationals that pay no tax tax first. That would deliver massive massive windfall for the budget shortfall.....

Out of 1539 of Australia's largest corporations 38% paid no tax in 2013/14.[/QUOTE]

@Beanie Girl

Exactly, Libs are too worried about tax these companies, or they are not willing to touch their political donors, or they only look after the rich boys club. Little people are easy to pick on. Labor is hopeless on this as well, they better put their act together before barking on something. Green has support tax on big companies and abolish NG, however, apart from gaining political popularity among ordinary people, they don't really have much than better slogans.

 

While I think we are in store for change to negative gearing, this policy would be a tough one to get through the senate.

 

If grandfathering existing cgt and neg gearing it won't be the end of the world, might even make the banks back off on investors as the weighting of their books shift. Most property I would hold would be yielding 6.5% due to value adding so whilst rates remain low I'm positivly geared before depreciation. Cut to CGT concessions would change the way I set things up. I would buy post 30/06/17 property in a company for protection and land tax and sell pre 30/06/17 properties that are held in trust for debt reduction with lower tax paid.

 

This takes us back to the Rudd years of policy by popular polling. The policy as outlined (in the article) isn't going to be particularly effective on any level.

By allowing negative gearing through new housing, they simply push investors to new housing stock. There's nothing to address supply, so the cost of new housing will increase. This is also the main market for first home buyers, so now investors will be competing with first home buyers more than ever. This policy hurts first home buyers more than it helps them.

Additionally the biggest gearing write offs today are in brand new housing as everything can be depreciated. I suspect the cash savings the Labor party is anticipating will fall far short of their projections.

It's fairly irrelevant however. The policy is so ill thought out that the Liberal party will be able to drive a truck through the holes in it. Shorten is already polling badly, this isn't going to win many votes that he doesn't already have and it will loose quite a few of those too.

 

@peter what you have said is very rational unfortunately little in politics is.

As my income predominantly comes from the success of growth areas and new builds this policy would be quite good for me.

Also all my current property investments are in these areas so cap growth in here would be good for me too.

Never thought I'd be a fan of shorten policy.

Will it work hell no. Like all government metalling the result will not be anything like there modelling and property growth in FHB territory will go through the roof, just like it did when the grant came in.

 

Yes, negative gearing for new houses/units/apartments will push investors to new stock as they chase depreciation benefits.

Not sure that new housing stock is the preferred main market for first home buyers as these are located usually a long distance away from the city (e.g. new house and land packages). I thought FHBs are buying this new housing stock because they have little choice and FHBs have been outpriced out of prized existing/older housing stock closer to the city where they tend to work?

Peter, a genuine question, once investors are attracted in droves to buy new stock, won't that leave more existing/older homes for first home buyers to buy? Firsts home buyer (FHBs) do not need depreciation benefits for their PPOR and I thought first home buyers prefer to buy existing/older stock as it is closer to the city, nearer to amenities like good schools, hospitals, leisure facilities etc?

So the point of the policy to end negative gearing for existing housing stock (much as we investors don't like it) is to push investors towards new housing stock (creating building employment) leaving existing housing stock nearer capital city centres for first home buyers/young families to buy. It's like social engineering trying to ensure that working moms and dads with young families lives close to their places of work, good schools, facilities, parks and amenities. This will also stop the pressure on expanding the urban growth boundary (UGB), reduce the need to build expensive infrastructure (roads, trainlines, sewerage, utilities, hospitals) in woop woop (State saves money for their budget to do other much needed things), stop the destruction of farmland close to the city which increases the transport cost of transporting our food to us as our food supply gets further and further away from the city.....

 

@Beanie Girl

Its a complex subject with many variables but I tend to agree with your line of thought.

 

Politics aside - this is why it will never work in one sentence.

 

If people push the price of new housing stock up then it will only be to a point where existing housing stock is not more attractive.

As existing housing stock for the bulk is in more established suburbs that have experienced years of capital growth, then no this is not suddenly going to get more affordable for FHB.

All that will happen is areas like Cranbourne and Pakenham may become less affordable to where they are now for everyone FHB included.

 

I've got a lot of anicdotal evidence that suggests that the new build market is quite significant for first home buyers...

There are two things I do know from my business relating to first home buyers:
* The biggest hurdle for first home buyers is not affordability, but deposit.
* The majority of constriction loans I write are for first home buyers, almost none for upgraders (they tend to be substantial renovations). A modest amount for investors, but these tend to be duplex or 3-plex developments, rarely a single house build.

Using Victoria as a case study, focusing on Melbourne (because nobody ever complains about affordability in Ballarat and other reagional locations):
* The $10k grant is only payable on new property, not existing.
* 50% stamp duty waivers are only applied when the purchase price is below $600k on existing property. In Melbourne the median value is now well above that, the general exception being cheaper appartments or fringe and satelite suburbs where a significant amount of the activity is construction.

Even borrowing 97% of the purchase price on a $600k property a purchaser will need to contribute about $73k. With the 50% stamp duty reduction on established housing this goes down to $57k. Add in the inscentives for new properties and it becomes roughly $32k.

Of the figures $73k, $57k & $32k, which seems like something a couple can save in a reasonable timeframe?

If first home buyers are focusing in the suburbs, mediam prices are well above any threasholds for the grant ($600k) and will remain above those threasholds even if prices drop 10%-20% (unless the FHB is willing to live in a 2 bedroom appartment which admitedly a lot do). The minimum deposit required for entry into a $650k established property is roughly $82k.

Then there's what you get for your money. $600k in the 'burbs of Melbourne gets you a 2 bedroom appartment where you're competiting for parking space. If you go to the fringes in a new build, $500k it gets you a brand new 4 bedroom house with all the trimmings and a (tiny) back yard. My observation of people coming through my door is the singles are pretty happy with the appartment, but the couples want the house because they're also thinking of children.

Prices might drop in the inner suburbs somewhat, but does anyone really believe that they'll drop by more than 20%? A $1.3M property becomes $1,040,000. I think the highest purchase price I've personally seen for a first home buyer was $780k and they had wealthy parents.

The existing government incentives, price points and even the focus of advertising suggests that fringe suburbs with high rates of construction are highly favourable to first home buyers. Pushing investors into these markets will have a significant adverse impact on first home buyers.

The real impact of this policy will be to increase construction activity. There might be some price drops, but not in a quantity that helps first home buyers to a significant level. It will definitely push up prices in construction zones which will negatively impact first home buyer affordability.

It just occured to me that this policy is pandering to the building unions, not first home buyers.

 

Yes which makes it cheaper, and most government subsidies have been aimed towards new construction. Labor like usual, will only end up hurting the people they claim to be helping and for what? typically idiotic policy from them.

 

It's a big boost for the building industry and by association, the unions. It doesn't help the people they're advertising it to, but it does help those who the Labor party represents.

 

I'm going to take a small punt on what I believe to be severely underpriced builder (SIO) on the ASX. They already have upside over the next two years, but if this policy comes in they should benefit substantially. DYOR.

 

With first home buyers taking on mortgages of 500k with nothing more than a government grant and a piggybank you might as well short Genworth (GMA) while you're at it.

 

They generally have the earnings to support the mortgage repayments as long as they stay sub 10%.

 

The whole NG thing is waaaay over rated and done to death imo. If an investor is seriously worried about how changes to NG will affect their wealth creation, then they need to take a good look at how they are building their portfolio and managing risk/cashflow.

Just my opinion.