ALP Proposed neg gearing changes

Just read Professor Richard Holden's report ("Switching Gears - Reforming negative gearing to solve our housing affordability crisis") that Short Willie is basing his policy. In it, the Professor says on page 16:

"There is no obvious reason why existing dwellings are proving to be more attractive to property investors than new dwellings."​

I am not a Professor of Economics but I would have thought the reason was Supply and Demand.

Existing dwellings tend to be closer to the CBD; hence, supply is lower.

These dwellings have better access to work, transport, schools, shops, hospitals, etc; hence, demand is greater.

Home owners and investors want to buy as close to the CBD as they can afford.

 

Howdy...

just a quick link to an article from the wkend.. from the ALP on proposed negative gearing changes..

love to hear some thoughts / discussion from PC on this?
Good / bad for investors?

Shorten unveils negative gearing changes to 'level housing playing field'

Cheers

 

2 threads on this already

 

And this guy is a professor and no doubt his wage is paid by us taxpayers? scary.

 

transcript if you're interested. Press Conference: Sydney - Labor’s plan to fund health & education – and balance the Budget

 

@Peter_Tersteeg - residential housing construction is largely a non-unionised part of the construction industry.

Redevelopment of inner-city sites will lead to both FHB/SHB & investment activity in areas closer to the cbd (There's a need to look at both SEPP and LEP as to supply of suitable brownfield sites as well as NSW strata law reforms and council amalgamations).

 

I buy established because I can renovate or develop. So do a lot of other people. These properties are popular (in demand) therefore higher price. So IMO you are spot on, supply is restricted and demand is high. Also, potential to add value, so I am prepared to pay a bit more than a property with no potential to add value. NG has never been part of my feasibility.

I don't care if they remove it.

 

If Labor looks a chance of getting in, I can see a lot of renos happening between July this year and June next year.

You get a double banger benefit:

1. No rent while under reno, income is down, more likely negative geared on 1 July 2017
2. Can claim reno costs under depreciation (makes it more negatively geared)

 

That's actually scary he can come to that conclusion. Without even needing anything but common sense you get the incredibly obvious location, price and returns trio, throw in the ability to add value and you've basically ticked all the boxes that investors look for.

Why pay a premium for a shiny new building when you get the same return at a discount for the established house.

 

But remember that many (most?) investors are relying on CG doing the heavy lifting over time, even with renovations. If the CG in mid- and high-end locations goes much lower because investors leave that market (low yield, so relying on some NG to take them through those times), then it's a valid concern for investors and their portfolios. Even those buying to develop will likely be in mid-end+ locations and be effected by lower price increases and CG.

Some people may have their portfolio built entirely on low-end locations with high-yield. But for everyone else, knowing - or rather guessing - how the changes could effect their portfolio is a prudent and sensible thing to do.

It's all built on "ifs" at the moment. Scott M next Wednesday should give us a little more to go on.

 

The only people who will be severely affected are the people who don't have proper risk mitigation measures and cashflow buffers in place. In my opinion, anyone who allows themself to be in a situation where they are so NG without proper risk measures in place is really asking for trouble. If investors want to rely on CG to do the heavy lifting and are happy to absorb the deficit from negative cashflow after NG allowances then that is fine. I have many places NG at one time or the other. But i also have risk measures, buffers and an overall plan for each of those 'NG deals' in place. You just can't allow yourself to be in a situation where having to pay an extra 2,3,4,$500 plus a week would absolutely wipe you out completely. If i was in that situation I would take a serious look at how I am structuring my portfolio and review the strategies and risk measures I have in place.

Just my opinion.

 

I definitely agree in the short-to-mid term.

I think the major new long-term risk - pretty much unforeseen before Henry and others became interesting to the current stock of pollies - is that mooted NG (and CGT) changes could negatively effect the long-term CG in the (hopefully) higher CG and lower yield locations.

Once the tax changes move from being a 'risk' to an 'issue', it's probably too late to change strategies (although a government may win an election with an agenda for change, it could be months before it actually gets to be law. Of course they could make it a double dissolution trigger and have a combined sitting, but let's ignore that for the moment ).

 

Those buying for development purposes fall under a different arm of the tax law anyway as they're running a business and as such would still have access to "negative gearing" and aren't entitled to the capital gains exemptions anyway.

These changes really do limit themselves to those playing the "high risk, high reward" game on properties that are being bought with long term capital gains in mind, the speculators as such. Those with positively geared properties will not be impacted, those with slightly negatively geared properties will feel a minor sting at tax time each year but otherwise wont have a sell decision forced on them.

Those making the massive losses are the ones impacted and they'll have the tough decision but should the government be incentivising them to take such risks in the first place? They've either bought and accepted that loss on the allure of massive future gains or they've made a terrible decision, the first group are just losing the taxpayer support of their investment and the other probably could use the push to get out anyway.