RBA Suggests Review of NG Laws

Discussion in 'Property Market Economics' started by Phantom, 16th Jul, 2015.

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  1. Big Red

    Big Red Well-Known Member

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    I think negative gearing has a place i.e. offsetting your income against your expenses. The main issue that makes NG crazy is the leverage. Yes you can use NG on business, shares etc however you probably will not get anywhere near the same leverage that you get with property. i.e. you can have 10% or 100k and can borrow up to 1m! Assuming you have the servicing requirements.

    I think NG should be limited to new properties or within a timeframe i.e. a car depreciates over 5 years.

    When you buy a property you should buy it because it makes you money or for the right fundamentals. No bank will give you a loan if you plan to never make a running profit or always be cashflow negative (except for housing). Even with a share portfolio you would expect to have some revenue to meet the expenses/interest. Shares have liquidity which has an advantage/disadvantage.

    Houses prices are very high compared to the rental income and NG is sustaining this as owners are allowed to offset loses in property against income. I have been trying to simulate what will happen when rates go from 5% to 6 to 7 to 8% in terms of impact on cashflow for having just one IP property. This assuming one buys an IP today.

    Personally I dont know how someone can have a NG property unless there is a huge difference between costs and income. I.e. someone with a 600k loan and only getting 400 per week. Or in Sydney probably 800k getting 600pw. The numbers don't add up and its a spec game hoping for a capital gain that is worth it.

    Therefore the fundamentals are thrown out and you are simply buying for capital gain.
     
  2. Sackie

    Sackie Well-Known Member

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    There are also those investors who buy for CG based on the strong fundamentals of an area and dwelling. Coupled with buffers, risk mitigation strategies and also the prospect of adding value to a dwelling, NG for many dwellings makes perfect sense for a segment of investors, whether its for a short or longer period. There is a lot of money to be made with dwellings that for a period may need to be NG in order to realise the larger plan/goal.
     
  3. Natedog

    Natedog Well-Known Member

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    Negative gearing has been around for what....30 years or so?

    It's here to stay.
     
  4. Coaster

    Coaster New Member

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    Interestingly the Cameron Govt in the UK is curbing NG in their latest budget handed down recently as reported by the AFR. It suggests the measure is aimed particularly at prices in London (which makes Sydney look affordable). Property investors at present;
    ...receive tax relief at as much as 45 per cent, which is the top marginal tax rate. But from 2017 this tax relief will be reduced slowly to 20 per cent. Chancellor George Osborne said the present system gave buy-to-let landlords a "huge advantage in the market" over people buying homes to occupy themselves.
     
  5. Casteller

    Casteller Well-Known Member

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    Actually the UK never had negative gearing, they are restricting deductions to the lowest margin rate, plus not allowing any depreciation allowances anymore. So a lot more property investors will have to pay tax.
     
  6. Redwing

    Redwing Well-Known Member

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    Will they remove CGT and Stamp Duty also?
     
  7. Foxy Moron

    Foxy Moron Well-Known Member

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    Leaving aside the pros and cons of NG for one moment - what are peoples thoughts about the RBA wading into this topic in the first place ?
    A perusal of the Reserve Bank Act 1959 describes the duty of the Board in section 10(2) ....to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank under this Act and any other Act, other than the Payment Systems (Regulation) Act 1998, the Payment Systems and Netting Act 1998 and Part 7.3 of the Corporations Act 2001, are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:
    (a) the stability of the currency of Australia;
    (b) the maintenance of full employment in Australia; and
    (c) the economic prosperity and welfare of the people of Australia.
    (bolds added by me)

    Section 10(1) also empowers the Board to determine policy in relation to any matter.... and to take such action as is necessary to ensure that effect is given by the Bank to the policy so determined.

    So does this therefore give them license to comment on how the elected government of the day manages the collection of income tax ? And is it their place to bluntly offer political commentary in any case ? I think its taking jawboning to the next level, and oversteppping a little - what do the intelligent minds on this forum think ?
     
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  8. Lisa Parker

    Lisa Parker Well-Known Member

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    There's plenty of affordable options for FHB's, I don't understand why they keep saying there's not. It won't necessarily be their idea of a "dream home" but most people, including our parents and grandparents, didn't get their dream home straight up. They worked for it and gradually upgraded until they got what they really wanted.
     
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  9. Kael

    Kael Well-Known Member

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    Unfortunately, a lot of FHB's now want the best of the best and a lot aren't willing to go for anything less then their dream home :/ It's sad, because I see so many of my friends complaining about prices, but there are plenty of opportunities around them, but they just don't want it.
     
  10. Angel

    Angel Well-Known Member

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    Dare I say it but Jackie Lambie actually said something I can agree with last night on QandA. She said that NG might make sense with one or two houses, but for a portfolio of 20?
     
  11. Big Red

    Big Red Well-Known Member

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    @foxymoron

    I guess the RBA has a huge dilemma in that it has to control inflation but the tool it has affects the whole economy and affects the property market.

    I personally think borrowing should be restricted to a multiple of earnings.

    I am mean seriously there are normal looking houses in Melbourne and Sydney for over 1m -3m. Even if I had the money to buy a property how does that even make sense?

    Furthermore, how would someone go about repaying it?

    Imagine today a couple aged in their mid 30's who have saved a 200k deposit looking to buy a 1m house in an average suburb of Melbourne or Sydney. The loan is 800k - at 5% the interest is 40k per annum allow and a 30 year loan is 27k per annum repayment roughly. So that is a 67k payment after tax so aroundly 90k before tax. That is almost one persons income on just the minimum borrowing of the loan?

    The issue is not NG really it is the leverage allowed on property that is creating the debt environment.

    In America you might get 3-5 times your income, in Australia you get 6-8 times at least.
     
  12. Big Red

    Big Red Well-Known Member

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    I definitely agree with that. There are plenty of houses and people want everything new. I know because I wanted everything new but when I looked at the repayments I nearly fell of the chair lol.
     
  13. jaybean

    jaybean Well-Known Member

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    Or they bought in crap area, which over the period of 30-40 years turned into good areas. Where I live now was quite a dump even 10 years ago but now it's crazy popular. The people who live here now are the very rich. The people who have been here for decades used to be the very definition of working class.
     
  14. Aaron Sice

    Aaron Sice Well-Known Member

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    I look forward to Swedens 25% VAT system here then, to pay for it.
     
  15. Ed Barton

    Ed Barton Well-Known Member

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    More like 100 years. It's as old as income tax.
     
  16. dabbler

    dabbler Well-Known Member

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    The probably should stick to other things, but C and your highlight of "any matter" probably means they can weigh in on anything at all.
     
  17. Bayview

    Bayview Well-Known Member

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    Someone with a portfolio of 20 houses would most likely not be NG.

    Unless they were a very, very high income earner who could handle all the neg cashflow out of this pocket each week.

    The percent of the population in this wage bracket is very small, and the percentage of folks in that bracket who are even interested in acquiring 20 IP's would be microscopic.

    If the Gubb, or the RBA are thinking of changing the NG laws just to punish this minuscule minority of the population, then the Country has a serious mindset issue Towards those who are successful and/or rich, and we are all probably domed.

    I don't think Jackie Lambie has any clue; it'd be interesting to see if she owns any property at all, and/or if she owns an IP....

    And, the fact that she is on Q and A says a lot...she would no doubt be on that show as one of the "pro Q and A" hand-picked guests.

    You will never see a panel of anyone on any ABC media platform which is pro NG, because the ABC is so left leaning it is scary, and as a general; left leaning folk are anti anyone being rich and successful, hate capitalism and it's representatives and so on.

    You may occasionally see a pro NG guest on Q and A...they will be there for the rest of the panel and the hand-picked audience to attack for entertainment for their viewers.

    It's a disgrace....supposed to be impartial and representative of the whole Country.

    That orchestrated and edited stunt last week with that 10 year old boy asking the question to Tony Abbott (written by his mother and father); I'd bet my house they will never get a 10 year old boy on there crying about how Billy Bob has been accepting bribes is scaring him and keeping him awake at night...LUMSH
     
    Last edited: 22nd Jul, 2015
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  18. Angel

    Angel Well-Known Member

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    I know she hasn't got a clue. That is my whole point. :) I fell asleep before I discovered if they ever got back to that topic.
     
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  19. Bayview

    Bayview Well-Known Member

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    Ah! got it.
     
  20. Chilliblue

    Chilliblue Well-Known Member

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    My opinion is that the general population do not understand what is and how negative gearing works and that is applicable not only to property but to shares, wine, artwork and other investments.

    Sections of said population will then jump on a bandwagon that suits justification of their cause.
     
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