Tax and legal advice

Negative gearing is unfair, says economist

By webmaster

Negative gearing is one of a large number of loopholes and concessions in the tax system that detracts from its fairness and adds to its complexity without doing anything to increase the supply of housing, according to an industry figure.

Speaking at yesterday’s federal government tax summit in Canberra, Grattan Institute economist Saul Eslake told a roomful of government officials, including prime minister Julia Gillard and treasurer Wayne Swan, that the practice of negative gearing transferred $4.5 billion per year from ordinary tax payers to affluent ones.

Mr Eslake told Smart Property Investment, negative gearing results in a loss of revenue of at least $4.5 billion a year, enabling people who are affluent enough to be able to absorb paying more in interest than they earn in rent, both to defer and to reduce tax.

“If there was clear evidence that this loss of revenue had a beneficial effect in terms of increasing the supply of housing, particularly housing at affordable rents, then it might be a price worth paying,” Mr Eslake said.

“But since more than 90 per cent of negatively geared investors buy established properties rather than new ones, and since despite Australia being one of the few countries in the world which allows negative gearing in the way that we do, rental vacancy rates are much lower than in countries which don’t allow negative gearing,” he said.

“In my view it is impossible to conclude that negative gearing serves any purpose than to allow wealthily affluent tax payers to defer and reduce tax.”

Mr Eslake’s comments, if taken seriously by the federal government, have serious implications for existing and future property investors in Australia.

Many investors rely on the windfalls of negative gearing, the practice that allows investors to write off losses made on rental properties against other income.

The rule was briefly suspended under the Hawke government, but popular beliefs that the measure caused a surge in rents are unfounded, Mr Eslake said.

“If you look at the evidence from the consumer price index from that period, that’s simply not true,” Mr Eslake said.

“Rents did go up in Sydney and PerthPerth, TAS Perth, WA, but that’s because vacancy rates were less than two per cent at that time. In other cities rent inflation either didn’t change or, in Melbourne, went down,” he said.

“If it were true that the abolition of negative gearing would lead to landlords selling their properties on a large scale, and there’s no evidence that they did that in 1986-88 either, then the result would actually be that the price of investment properties would fall, homebuyers would be able to buy them and there wouldn’t be any upward pressure on rental markets, so I don’t think that common assertion has any merit.”

Mr Eslake added that he is supportive of abolishing negative gearing for all investors, not just those who invest in property.

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  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

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    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1197 (52) {
  ["id"]=>
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  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
  string(74) "regional-victoria-showing-up-melbourne-in-price-performance-new-data-finds"
  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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