Restricting investors would be ‘disastrous’
Abolishing negative gearing or introducing loan to value ratio (LVR) restrictions on investors would immensely damage the housing market and place extreme pressure on governments to meet housing needs, a leading real estate commentator has warned.
Speaking at a media briefing this morning, Charles Tarbey, owner and managing director of Century 21 Australasia, said there was currently a lot of noise in the market place relating to investor spending – but current suggestions relating to how to slow property price growth were missing the mark.
“If you look at the marketplace we’re in right now, we still have a massive undersupply across most parts of the capital cities,” he said. “If you take the investors out of the equation and you make it difficult for them, then somebody has to provide housing and that’s going to have to fall back on the government. If it falls back on the government and the local governments and their planning departments – and the green and red tape you have to go through today to get a development down on the ground – then it’s going to be quite disastrous for a few years to come.”
Mr Tarbey said most pricing issues in the property market today aren’t a result of investor speculation and overactivity and aren’t explained away by foreign investment. Instead, he argued they come back to supply issues.
“The problems we have had relate back to supply – mostly back to supply. And if the supply issue is fixed and if the councils and the green and red tape issues were resolved and we had a smoother flow of developments through that didn’t take so long to get out on the ground, we wouldn’t have activity like we have … That’s the biggest problem. There is a supply issue [in Sydney],” he said.
In addition, Mr Tarbey said commentary that ‘money is cheap’ and ‘it’s too easy to borrow’ is misinformed.
“It’s still pretty hard to borrow money in today’s market. A lot of people think there are plenty of funds out there, but it’s still very hard because of responsible lending,” he said.
Any further restrictions on lending or investment activity would cause over-regulation and give the government too much control over the housing market, he said.
“[The banks] already take a hard line with responsible lending … You can’t just go out and buy an investment property and take a risk. The bank is now running your investment portfolio through the government. You’re just the mug who pays the land tax and rates and the interest payments, but everybody else makes a profit out of it and tells you how you should do it.”
Mr Tarbey said investors may have plenty of equity, but could struggle to continue borrowing if certain assets in their portfolio aren’t generating revenue.
“Some properties that you buy, you don’t want revenue. You’re happy to buy it as a development site. You’re going to sit on it, you’re going through council, [but] they won’t approve it if you cannot demonstrate the exact repayment plan on it.”
- <p>It was low-doc loans that caused the GFC in the first place so I think the LVR @ 20% should be strictly adhered to. If NG was abolished then it would force the government/s to pull their fingers out to release more land available for development and hopefully cut red-tape in the process due to public pressure, and make housing more affordable. I agree with 'Plain Talk' that it would be difficult initially but would benefit the economy long-term. It is low LVR & NG that causes housing 'bubbles', and lack of supply.</p>0
- <p>Without investment properties where will tenants live?</p>0
- <p>Restricting negative gearing would be disastrous - yes - but for the self-interested real estate lobby and perhaps to the actual house prices in the short term. But it would do greater good to the economy in the long term. The issue is high prices are due to both supply and demand factor. It is clear that NG is adding to the demand pressures but it does nothing to influence new supply flowing onto market(with more than 90% of NG investments are into existing dwellings). More importantly, these self-interest groups will not talk about mortgage investor finance breaking all the records wherein the business and capex investments are falling like house of cards. Where will the new jobs come from if the business growth is anaemic? Will it come from NGeared property?</p>0
