Will there be a Investor sell-off before this years Election..

I see a sharemarket correction coming. After that its like the Keating years where funds shifted back to property after the markets corrected soon after everyone said property would crash. It didnt. Property is the big alternative to shares (in any name).

People will learn to adjust life to lower yields and chase stability or longer term gains. And few investors will sell just to realise tax and also lose the 50% discount. People will look back just like we do now with pre-CGT assets.

One of the stats that is lost on neg gearing is that for multiple dwelling investors (ATO data is 2 or more property interest) is that neg gearing of recent purchases often offsets older positive gearing. So technically speaking the new ALP policy only is a concern where total rental income is a net loss. Heavy investors in property often have a mix and lenders limits often act as the brake on anyone having six properties all neg geared. Only the media reports that "all investors use neg gearing"

People will learn these strategies and it wont be as bad as some think. And they will adapt to new CGT rules. A lesser discount. Not no discount. And its same for shares as property.

I question what stimulus will be given to new construction to maintain jobs and growth.

 

How does RE Investment/ rental market operate in rest of the the world where NG is not the carrot to invest?

Though speculation is an aspect, yield still plays an important role for long term investors. For yields to become attractive price has to fall or rents have to shoot up (double?) to support the already high valuations.

Though rising house price can be more a function of loose credit,
Rental markets are more fundamentally driven and requires income (along with demand) to support it, if demand / rents are rising and income is not, people adapt, share accommodation, move outwards etc.

We are entering in a decade of rising gig economy, cannibalisation of normal jobs due to ever increasing automation resulting in salary stagnation being the new normal. In such a period to bank on increasing migration to bail out future demand is risky strategy to say the least.

One thing to keep in mind, construction costs have remain stable its the land price which has boomed exponentially in frothy segments due to imaginary restrictions.

 

Agree that relying on migration to bail out the future is risky - not advocating that.

Other countries have far worse alternatives to NG: the US has rent controls, and the UK has public housing to name but two. Both lead to far worse outcomes.

The whole discussion about removing NG is derived from more than a sprinkle of economic illiteracy: it ignores artificially low interest rates, fractional reserve banking, and land release as well as population policy. NG is just a mindless (ahem) soak the rich policy without any grounding is a true understanding of house price drivers.

My original contribution to this thread was more about the changes to NG representing a stealth re-definition of "taxable income". The bigger issue in my opinion.

Good people can disagree about the likely impact of NG removal.

 

• NG limited to new housing.
• New home grant irrespective of first or 10th home.
• Build-2-Rent yearly subsidies.
  
  New house construction gives more economic bang for taxpayers funded handouts then flipping existing property to each other.

 

I will be worse off from NG/CGT reforms if it comes, I am neither discussing the merit of policy per-se,
I just wanted to underline what I thought was a flawed argument
"Oh.. but we can raise rents"
to base new/continued investment decision on.

We are entering a decade of rising gig economy, rising underemployment, stagnating/falling salaries, were the growing disparity between haves and have-nots will just keep increasing, In such an environment, irrespective of policy merits 'populism' will be the new black and politically will hit home sooner then we think.

It may not be a bad idea to challenge our investment strategies for a decade which is to come rather then plan it based on what has passed.

 

Yes downward pressure

Also There will be some fire sales, especially with the interest only loans reverting to I&P

Some wont be able to sell, Depends on loan value and value of property, some wont be able sell without making a loss

Majority will hold if they can

 

I dont know if its bailing out. We need to make sure our demographics have a sweet spot of people in the 20-60 age bracket to pay taxes otherwise we will become an Italy or Japan.

 

Frenzy highly unlikely

Your forgetting the credit squeeze and why the market has softened

Investors cant source finance what will change with regards to this?? Servicing debt wont improve over night.....

 

I am not opposition the policy, I am just highlighting that rising numbers cannot be taken for granted given fast changing political landscape in developed world with political populism seen as an easy fix.

 

Out of curiousity: which side is courting populism in your opinion? The side that wants to keep or remove negative gearing?

Populism is a bit of a woolly term, and can just mean "anything I don't like".

Cheers,
John

 

both,
that term has to be seen in context of respective vote-bank, irrespective of policy merit,

 

Why have NG at all?

Like someone else said, investors expectations eventually come in line with what market has to offer.......

Investors diversify the portfolio and will always invest in housing ... may be those who wanted to have 10 properties will now only want 5....

I am not sure if the demand will go down due to these changes, the demand will be shifted from investors to new home buyers as I really think the changes will bring prices down (we actually need a correction).....

 

Hi Gary,

NG is just offsetting gains from one income source and losses from another. Right?

It's not a tax "benefit", because you are still making losses. It's just an outcome to get to a net "taxable income" figure. Why is it controversial?

 

Correct - you can't necessarily attribute the performance of the economy in a certain year to the government in the chair. With some policy reform there will be a significant lag in the effect of that policy impacting the reporting metric.

 

Agreed.

I would also add that periods of ALP rule can be typified by more inflation, as they do tend to worry less about debt and introduce more government programs (needed or not). This can goose asset prices, but that doesn't mean our standard of living is going up.

I would also add that whether the ASX goes up or down is influenced more by who is in the White House than who is in the Lodge. This may or may not align to any particular political force in Australia.

 

It is a tax benefit. Your losses are less.

 

If you are deriving multiple sources of income, where should the losses from one of those sources go?

Remember, it is only a tax refund if you have already over paid tax on other sources of income.

It is not a tax benefit, it is a correction to the previous over payment of tax.

BUT for this thought exercise, let's say you are right - and that it is a tax benefit. Who should get that tax benefit? You (on your losses), or the government (on your losses)?

 

I’ve always been an opinionated outrage-prone hothead. I think I should probably stick to voting, putting a huge sign on my front verandah, and commiserating with retirees about this on Facebook.

 

I would also add, as Labor typically runs expansionary fiscal policy it also explains higher growth without the higher tax percentage on GDP as the growth is Govt spending and debt driven not organic via profitability of the private sector. I know which way i consider a vastly more healthy and sustainable model.

 

Decades ago the government decided to drastically reduce the amount of public housing it provided and to incentivise the private sector to supply some of that housing instead. Think of negative gearing as a financial incentive to encourage the private sector to provide more rental accommodation.