Bill shorten poised to take negative gearing.

But the Senate won't if they have the numbers.

 

Its not quite that straightforward.

That graph only shows rent rises relative to inflation, actual rents continued pretty much everywhere except possibly Brisbane in that short window.
Remember it was during a period of much higher inflation.
Rents in Sydney outstripped inflation significantly.

 

The announcement in the Sydney conference today is negative gearing will be:
-grandfathered. 1 July 2017 is the cut off.
-still allowed on new properties to encourage more housing
-25% CGT discount instead of 50% but no mention of grandfathering this CGT change.
-no change to PPOR rules

So new properties will have incentive of overseas buyers plus rich negative gearers trying to reduce their tax.

I'm happy that properties will become cashflow positive investment like overseas (in the long term).

But I do have concern if this will further contribute to glut/oversupply of empty units we are already starting to see in places like Melbourne and Brisbane CBD.

As a bad policy, they should just scrap negative gearing totally as it distorts the market to overpriced units that are already snapped up by certain overseas investors.

 

How would this work:

1) Grandfathered property goes cash flow positive over time due to rental increases

2) Equity release back to 10%, it goes cashflow negative again

Would that new equity release still be "grandfathered"?

 

I also find it hilarious how he said he wants the take the heat out of the market. That heat has already been taken out - it's called an economic cycle. It works itself out.

 

Equity release for a new property does not count towards the old property on your tax return. That is a deduction against the new investment only.

Nothing stopping you from negative gearing an investment into a share portfolio though.

Maybe 1 July prepare for a jump in the asx.

Important to note also that with the lowest interest rates in history, when rates go up again negative gearing may still be a while before those properties become positive.

 

I don't understand the whole drama around negative gearing. I have a negatively geared property but the tax saving I Get from it is minimal...less than the land tax I pay every year.

I have to pay land tax, stamp duty on acquisition, council rates, some utilitiy rates, repair costs as they arise, real estate agent fees, insurance and commissions whereas on equities I don't have to pay any of this other than a tiny brokerage amount on trade execution. I Get rent on property yes but I Get dividend on shares...usually with full franking!

Throw in the cut to CGT discount which is more applicable to property than equities generally.

Surely some kind of small incentive should be available given all these other costs of property investment?

 

If we didn't just come from the boom cycle, none of these policies would get any votes as people are aware PI is not easy. Their timing is excellent for this announcement.

 

How are they picking up the tab?

If I earn 100,000, and lose 20,000 per year in this investment, shouldn't I be taxed on 80,000?

Just as, if it makes 20,000, I should be taxed on 120,000.

They aren't paying anything for our losses.

 

I see a massive share bubble if it passes.

 

Why?

 

Including CGT decrease ?

Property bought prior to the introduction of the CGT was not subject to CGT .

Cliff

 

You're right, it isn't straightforward at all, I'm still trying to get my head around it.

CPI itself over the same period that NG was quarantined rose by 17.9%, so lets compare it against rental increases;

Sydney (26.1%) +8.2%
Perth (31.1%) +13.2%
Melbourne (19.6%) +1.7%
Hobart (19.7%) +1.8%
Canberra (19.8%) +1.9%
Brisbane (9.8%) -8.1%
Adelaide (16.5%) -1.4%
Darwin (6.2%) -11.7%​

Even looking at it this way I just don't see sky rocketing nationwide rents? I see a supply constrained rental market in two cities during a period of rampant inflation. Looking back to the early 80's (around 82'-83'), rents increased as an even greater proportion of CPI...

I'm sure there are many examples where rents have outpaced CPI (as both a component of and compared to) due to supply constraints. I'll use one local example as it's familiar to me and is an area where a significant number of investors (post 2003) would be negatively geared.

Sunshine Coast (4573) Coolum, Peregian, Marcus Beach and surrounds.
SQM Research - Weekly Rents

CPI over 3 years: 2.1%
Rental increase over 3 years: 21%

Increase above CPI: +18.9%​

 

Catchup from the previous 10 years of negligible growth?

 

Growth from the previous 10 years is negligible for this example. It's a supply constrained market with ultra low vacancy rates (1.1%).

SQM Research - Residential Vacancy Rates

 

Only if you have an unbalanced portfolio (property 20-25%, Australian Equities 30%, OS Equities 30%, Bonds 10-15%, cash balance).

By that reckoning (portfolio analysis), I should have a $gazillion

 

Same as now, it would depend on what you did with the equity release. Use it for living expenses and not deductible. Use it for approved investing and hence deductible.
Marg

 

Not to mention the cut in the CGT discount turning the sharemarket into a bigger daytrader's circus than it already is. Stockbrokers will be loving this...no real need for people to hold onto their investment to 12 months anymore...great, more turnover.

Also if their intention is to reduce property growth I don't see how these changes do it. Cutting the CGT discount will just encourage people to hold their grandfathered properties (ie all property currently existing!) for much longer. For example, I Was actually considering selling my Elwood IP, but if its going to have a CGT benefit over all future investments, I probably wont. So if many people thing like me, wont this actually tighten supply?

And with the negative gearing change, doesn't this increase demand for newer properties, meaning they will increase in price even more thereby increasing property price growth.

By the way, I am not biased at all...property is only a small fraction of my portfolio with the vast majority in equities...anything that drives investment away from property to equities is probably a good thing for me. I just think it fair for the smaller property investor, you know, the ones that only buy one or two properties, or even the people that rent and pay off an IP So that it can eventually become their own property.

 

New houses are better from a tax pout of view anyway - love that depreciation.

 

So negative gearing only on new builds which will continue to push out our already ballooning urban boundaries as new investors buy in the green field estate's so they can receive NG benefits.
So how will Shorten pay for the infrastructure that these new build area's will need?
So with possible tighter held markets close to the CBD will these increase rents as investors pull out of these markets?