‘Large-scale’ sell-off of properties under negative gearing reform
Changes to negative gearing policy could cause a mass sale of negatively geared properties and an increase in rental prices, according to an internal RBA memo.
The RBA recently released an internal briefing note under freedom of information laws, which said that the “potential negatives” of making negative gearing “less attractive” included a “potential increase in rents” and a “large-scale sale of negatively geared properties – though only if changes were not grandfathered”.
On the flipside, the note cautioned that the interaction between negative gearing and the capital gains tax “may encourage chasing of capital gains ... as it can be purchased using higher leverage than shares, for example”.
Furthermore, the memo said that “any change which discourages negative gearing may be good from a FS [financial stability] perspective” and noted that negative gearing can encourage “speculation” with “investors bidding up housing prices”.
Ken Morrison, CEO of the Property Council of Australia, noted that the memo was prepared in 2014 and was not official advice.
“It was input and the thinking at the time before APRA [Australian Prudential Regulatory Authority] introduced measures that the RBA more recently, and over the last six months, acknowledge have been effective in cooling elements of the housing market,” he said.
In reply to the release of the 2016 federal budget, Opposition Leader Bill Shorten last week detailed Labor’s plans to address housing affordability.
“Building a stronger budget demands an honest look at housing affordability, and tax subsidies such as negative gearing and capital gains that make the problem worse,” Mr Shorten said.
Mr Morrison said the Property Council accepts that the RBA were not modelling the federal opposition’s policy, but the memo clearly flags that changing negative gearing would impact rents.
“This memo confirms that policy makers have real concerns about how renters would fare under policies that make negative gearing less effective,” he said.
“We again call on the opposition to release its modelling on the impact of its proposed tax changes on rents and the property market.”
- <p>How long does one think a property remains negatively geared? All things remaining equal i.e. rent remains the same and so do interest rates, eventually the depreciation levels diminish and the property becomes positively geared. I've bought many investment properties "negatively geared" that very soon become positive. Negative gearing is not the problem, its the high level of foreign investors buying up stock and pushing up prices. This ponzi scheme (as witnessed in Ireland) will soon unravel in nothing short of the "Big Bang" in 12-24 months time when thousands of "off the plan" foreign investors can't raise the funds to pay the remaining 90% for an apartment earning less than 2% net yield. This will make the demise of the mining boom seem insignificant. Our pillars of society , the big 4 banks, too big to fail, know this already. This time our government doesn't have the surplus to bail them out. We will need foreign loans at much higher interest rates and austerity measures e.g. Greece.</p>0
- <p>I don't think anybody really knows the full impact of changes to negative gearing will have until such changes have worked their way in. Just because you already have negatively geared properties, you will not be immune to the changes. It will certainly have an effect to property prices and rents whether the move is up or down. We don't have a crystal ball and their are so many variables to consider, like interest rates, supply and demand in different cycles, oversees immigration ,superannuation changes, and finally consumer confidence which effects economic conditions.</p>0
- <p>Morrison and Turnball are spitting out so much rubbish and twisting the truth about negative gearing that its unbelievable! Its neither landlords nor renters that dictate if rents rise or fall - rather Its the market conditions. Removing negative gearing as proposed by the Labor Party will actually encourage investors to hold onto negatively geared property and hence maintain rental stock levels. I mean, why on earth would someone intelligent sell a negatively geared property knowing they cant do that again?</p>0
