Potential AXE to negative gearing?!

Article that @Karina just shared:

http://www.smh.com.au/federal-polit...l-as-national-mood-lifts-20151001-gjz7pa.html

Not really good news. I don't think tax should be the sole driver for investing. But think this won't have good consequences for investors, renters and who else? Will there be only a home buyers market?

 

I doubt these changes will be made overnight. Surely if any changes are to be made at all, they would be a gradual windback, or even not imposed retrospectively.

 

This has been mentioned 100 times and never gotten anywhere.

If it does happen, I don't really mind. I think it would help people choose sound investments rather than throwing darts at a nap and letting tax pay for it. It would also remove from the market those in it solely for the tax deductions.

Buy investments that make money, people!

 

Could play out several ways .

One way would be if people think they're not going to make as much money by selling , isthat they won't sell and they'll just hold

Result , lack of supply , more competition for less properties and prices go up more....

If people stop investing , then there is the possibility rents will go up .

Also would depends if they " Grand Father " properties bought prior to the date the law is bought in .

Not necessarily clear cut ...

Although I benifit from it , the easiest target is the lack of tax on superannuation payouts . That's an easy target that no one can really justify and is a big ticket item . I think that should go .

Cliff

 

I think there will be fewer sellers but also fewer buyers, all balanced out.

The reason of fewer buyers is that I know too many people buy negative geared properties mainly to reduce tax. That is also a sales pitch of a lot of salesman. So with axing of negative geared properties it would stop a lot of these people bidding for houses.

 

Sorry for the dumb question. But does that mean if a property is positively geared by 3k but paying you 20k income you would get taxed on the 20k instead of the 3k as you would now?

 

If NG is cut, I think people will also start to be more aggressive with their negotiating the price of sale for 'for sales' , in order to reduce short falls this way. There is no doubt that many good deals will be NG, at least to some extent. So to me it makes sense that if NG is gone, to be even tougher with negotiation on price, especially in markets that are buyers markets. I also think we may se an upward pressure on rents as seechange mentioned.

 

Maybe more relevantly , everyone seems to be happy about the outcome , so if everyone becomes positive , we may find that filters through to business confidence , businesses start investing ( which they're not doing at the moment ) the government makes changes which encourage investment and suddenly the economy is booming.

People have more money and they spend it on property , buying and renting nicer places and being able to afford the rent on the crap place they're renting from me and Dave without getting in arrears .....

Everyone's happy .

Cliff

 

There is a lot more force now behind the move to get rid of the failed policy of negative gearing.
Its good news that its hitting the mainstream now and politicians are talking openly about it, hopefully this time something will be done and NG will be scrapped or at least rolled back in some fashion.

No it doesn't mean that. No change if the property is making money.

 

Thanks for the clarification.

 

we'd actually need to see the specifics they bring in , but for example , At the moment , if someone is on the top tax bracket and has a property that costs them 20 K a year to hold , they can claim that as a loss against their wage and claim around 10 K back . as a tax rebate .

If some one has the same property , but is on a lower wage , they can claim less back .

If they abolish negative gearing , then you won't be able to offset losses on a property against your wage , so they wouldn't be able to claim that 10 K back.

Cliff

 

Sorry I meant the property gives them an 'income' of 20k but after interest and expenses the actual income is only 3k so it's positively geared. So currently you would pay tax only on the 3k. I was wondering whether abolishing negative gearing meant that interest and other tax deductible expenses would no longer be deductible anymore. But as wategos said nothing would change if the property is currently making money, which was the point I was ignorant about before.

 

It will primarily hurt sales of new stock and OTP units as these are most likely to have substantial depreciation benefits which may no longer be as important depending on any actual changes in policy.
There are lots of ways this could play out but without any detail its hard to know how exactly.
Yield will become much more important possibly altering the types of properties investors will consider.
The more expensive and low yielding properties would be affected more IMO.
Despite much debate saying otherwise rents will rise in what are currently (mostly) balanced markets as building activity may slow and some investors who look to 'save tax' may leave the market.
Like any market the housing market will adjust over time.

 

No NG will have impact on new constructions. This will have impact on employments which in return less tax to the gov.
Less property transactions brings less revenue to the gov again.
Less investors means less CGT too.
Less investors means more need for goverment housings.
So the question is... Is the government going to benefit by removing NG? I think not.

 

In the short term there will probably be a couple of years of stagnation in prices as some investors leave the market, and some don't see enough benefit in buying. Of course, OOs will continue to upgrade their PPORs, so after this blip of excess supply, house prices will continue to rise.

However, in the medium/long term the supply of rental properties will fall, while our popln continues to rise. And consequently rents must rise. Homelessness will probably also rise.

Any investors with c/f neutral or c/f +ve will be v. happy with the axing of NG; some will bring forward their retirement plans

The 3 million households that rent will be unhappy as it will remove the distortion of unusually cheap rents that have been caused by NG.

I'd expect new housing would be exempt from any new tax regime - this would imply the renters would tend to be be pushed way out into the newer suburbs, rather than being able to afford to rent in an established house.

 

Isn't that 'entering into a scheme' and illegal under the tax act?

 

Like the FHOG if they do get rid of it I think it would be pretty foolish to remove it from all properties, and it would be restricted to new builds.

 

The impact of abolishing NG has been widely discussed before.
We expect no retrospectivity, so some form of grandfathering to be in place, existing NG properties may continue to be so.
So, may be limited impact on existing NG investments.

Impact is on new investments when new law is in force with no marketing advantage of NG to investors - sales will drop, stamp duty will drop, RE commissions will drop.
Pool of rental properties will contract over time - tenants in urban suburbs face higher rent over time.
Some existing investors may be panicked to be 'first out of the door' and sell to move to other investments. Significance of this will depend on the grandfathering provision and also on related intention to review 50% CGT provision - prices may drop.

 

The way we expect the transition to be handled are pipe dreams since govt is not in touch with reality.

 

Not if the scheme is the logical and intended outworking of announced government policy.