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Negative gearing
Negative Gearing

If there was ever a political football that gets thrown around every election cycle, it’s negative gearing.

Join Adviseable’s Kate Hill and Hotspotting’s Terry Ryder as they discuss the in’s and out’s of negative gearing, and why it is a policy that governments should be embracing, not arguing about.

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I’m Kate Hill from Adviseable, and I am here with Terry Ryder from Hotspotting dot com dot au.

Today, we are discussing the latest political football that is being kicked around, and that is negative gearing in the press yet again.

We are talking about whether buyers and investors should be in any way concerned about this tax policy being tinkered with.

Tell us what you think. Do you think it’s a good policy? Is it a bad policy? Why does it continue to feature so heavily in Australia’s news and politics?

It’s a good policy. It’s a necessary policy. Features in media so much, because it’s a nice hot button issue that people like to dredge up, when perhaps a federal election is looming. It’s not necessarily the case that the people who are pontificating about it actually understand anything about it or the role that it plays.

So there’s a lot of misinformation about it. It’s, a public debate that’s just full of furphies and myths and misconceptions, and, it’s not terribly helpful.

How do you think it as a necessary and a good policy, how does it help house Australia? Well, the breakdown of households in Australia means that about a third of households rent, and over ninety percent of the properties they rent are provided by private investors.

The people we often refer to as mum and dad investors. The people who might own one investment property or two or three maybe. Ordinary people on average incomes most of the time.

For some of those people, property investment isn’t viable without the negative gearing tax benefit being able to write off your losses off your personal tax.

That’s particularly so I think in the big cities, where it’s very hard to achieve an investment property because property is so expensive that, pays its own way. Mhmm.

If you eliminated negative gearing, it would be not feasible for many people to own property in Sydney and Melbourne.

So where would the supply of rental properties that tenants need come from? We’ve already got a shortage. We’re gonna have a more serious shortage if Mhmm. If it wasn’t for negative gearing.

And there seems to be a real focus in the media on, I guess because it instigates outrage that, you know, we’re all tax dodgers. And it very rarely gets mentioned that the fact that the mum and dad investors, if we can call them that, are providing a retirement future for themselves that will then cost the government less money, never seems to get a mention. No.

No. There’s a lot of things that never get mentioned when we have this.

There’s this myth that property investors are an advantaged species. Yeah. Advantage by the taxation system. The opposite is actually true, because, property investors pay taxes that other people don’t pay.

They have to pay capital gains tax, whereas a home owner sells their property, they don’t pay capital gains tax, but a property investor does. They have to pay land tax, They pay higher rates of interest.

I don’t know why, but they do. They do. It’s in the system. They pay higher council rates. They pay higher rates of insurance. Property investors are disadvantaged in most cases. The one thing where there is some benefit for some, not all, property investors is be able to claim, negative gearing benefits. Mhmm.

Maybe half of people who own investment properties do claim it.

Yes. But, their impact they’re often blamed for pushing up prices. Mhmm. You know, investors are less than thirty percent of the market. Yeah. Most people in the market are home buyers.

And, by my estimate, there are more first home buyers in the market than there are negatively geared property investors.

Mhmm. So it’s a bit rich to blame property investors for rising prices because there are maybe fifteen percent of the market and the other eighty five percent, apparently, according to the theory of being overpowered by the fifteen percent, who are negative for geared property investors, and they’re blamed for rising prices.

Yes. That actually leads very nicely into my next question which is, you know, that you again, you read in the press a lot that property investors are solely to blame for unaffordable property prices because of negative gearing.

Because apparently, they all have this endless amount of cash just to throw at an investment property that, then, disadvantages the homeowners.

But again, what never gets to mention is that most property investors borrow funds to purchase their investment property, and investors aren’t actually stupid.

They do their research when it comes to property values, and so do the banks who lend them the money for that purchase.

So over this wanton overspending on property that investors get accused of is, I’m sure it does happen occasionally, but it’s very, very, very rare.

Well, it is. Because investment is what it is. It’s an investment.

Yeah. Property investors are much less likely to pay an over the odds price than a home buyer.

Mhmm. Most of the impetus for rising prices we’ve seen in recent years have come from home buyers competing with one another. Yes. Investors pretty much go in with, a very fixed budget and if they can’t get a property at that price, they’ll walk away Yeah.

And look elsewhere. They also have less borrowing capacity than a home buyer, because they’re paying higher interest rates. So Yeah. That’s one of the great myths of real estate, that property investors are responsible for rising prices.

So it’s actually home buyers and we, you know, in the, the last couple of years, property investors have been relatively not active based on historical norms.

It’s been home buyers that have been overly active and they’re the ones that have, pushed up, prices recently. Yeah. That’s right. Which is also what’s, I think, partly leading to our rental crisis.

So, Terry, just in closing there, what would you say to budding investors out there or somebody planning to continue to build their portfolio who is starting to hear all these rumblings again about negative gearing and that tax policy being tinkered with?

What would you say to them if they were maybe thinking of holding off, and waiting to see what happens, which some investors do love to do.

Yes, well a lot of wanna be investors are wait and see people. People who never take action. But, look, I think if an investor is thinking, and is well researched, and is buying in the right places, negative gearing doesn’t really become a factor because, in my view, good investing is buying in say a good strong regional area where rental yields are higher, housing is more affordable, and you should be able to buy in a growth area that’s going to give you good capital growth with a rental yield that takes care of most of the costs of ownership.

So in those circumstances negative gearing is not a factor. So it doesn’t matter to an investor who makes those sorts of decisions whether negative gearing exists or not. Mhmm.

Thank you so much, yet again, Terry, for your wonderful words of wisdom and expert insights.

You’re most welcome, Kate.

 

I’m Kate Hill from Adviseable, and I am here with Terry Ryder from Hotspotting dot com dot au.

Today, we are discussing the latest political football that is being kicked around, and that is negative gearing in the press yet again.

We are talking about whether buyers and investors should be in any way concerned about this tax policy being tinkered with.

Tell us what you think. Do you think it’s a good policy? Is it a bad policy? Why does it continue to feature so heavily in Australia’s news and politics?

It’s a good policy. It’s a necessary policy. Features in media so much, because it’s a nice hot button issue that people like to dredge up, when perhaps a federal election is looming. It’s not necessarily the case that the people who are pontificating about it actually understand anything about it or the role that it plays.

So there’s a lot of misinformation about it. It’s, a public debate that’s just full of furphies and myths and misconceptions, and, it’s not terribly helpful.

How do you think it as a necessary and a good policy, how does it help house Australia? Well, the breakdown of households in Australia means that about a third of households rent, and over ninety percent of the properties they rent are provided by private investors.

The people we often refer to as mum and dad investors. The people who might own one investment property or two or three maybe. Ordinary people on average incomes most of the time.

For some of those people, property investment isn’t viable without the negative gearing tax benefit being able to write off your losses off your personal tax.

That’s particularly so I think in the big cities, where it’s very hard to achieve an investment property because property is so expensive that, pays its own way. Mhmm.

If you eliminated negative gearing, it would be not feasible for many people to own property in Sydney and Melbourne.

So where would the supply of rental properties that tenants need come from? We’ve already got a shortage. We’re gonna have a more serious shortage if Mhmm. If it wasn’t for negative gearing.

And there seems to be a real focus in the media on, I guess because it instigates outrage that, you know, we’re all tax dodgers. And it very rarely gets mentioned that the fact that the mum and dad investors, if we can call them that, are providing a retirement future for themselves that will then cost the government less money, never seems to get a mention. No.

No. There’s a lot of things that never get mentioned when we have this.

There’s this myth that property investors are an advantaged species. Yeah. Advantage by the taxation system. The opposite is actually true, because, property investors pay taxes that other people don’t pay.

They have to pay capital gains tax, whereas a home owner sells their property, they don’t pay capital gains tax, but a property investor does. They have to pay land tax, They pay higher rates of interest.

I don’t know why, but they do. They do. It’s in the system. They pay higher council rates. They pay higher rates of insurance. Property investors are disadvantaged in most cases. The one thing where there is some benefit for some, not all, property investors is be able to claim, negative gearing benefits. Mhmm.

Maybe half of people who own investment properties do claim it.

Yes. But, their impact they’re often blamed for pushing up prices. Mhmm. You know, investors are less than thirty percent of the market. Yeah. Most people in the market are home buyers.

And, by my estimate, there are more first home buyers in the market than there are negatively geared property investors.

Mhmm. So it’s a bit rich to blame property investors for rising prices because there are maybe fifteen percent of the market and the other eighty five percent, apparently, according to the theory of being overpowered by the fifteen percent, who are negative for geared property investors, and they’re blamed for rising prices.

Yes. That actually leads very nicely into my next question which is, you know, that you again, you read in the press a lot that property investors are solely to blame for unaffordable property prices because of negative gearing.

Because apparently, they all have this endless amount of cash just to throw at an investment property that, then, disadvantages the homeowners.

But again, what never gets to mention is that most property investors borrow funds to purchase their investment property, and investors aren’t actually stupid.

They do their research when it comes to property values, and so do the banks who lend them the money for that purchase.

So over this wanton overspending on property that investors get accused of is, I’m sure it does happen occasionally, but it’s very, very, very rare.

Well, it is. Because investment is what it is. It’s an investment.

Yeah. Property investors are much less likely to pay an over the odds price than a home buyer.

Mhmm. Most of the impetus for rising prices we’ve seen in recent years have come from home buyers competing with one another. Yes. Investors pretty much go in with, a very fixed budget and if they can’t get a property at that price, they’ll walk away Yeah.

And look elsewhere. They also have less borrowing capacity than a home buyer, because they’re paying higher interest rates. So Yeah. That’s one of the great myths of real estate, that property investors are responsible for rising prices.

So it’s actually home buyers and we, you know, in the, the last couple of years, property investors have been relatively not active based on historical norms.

It’s been home buyers that have been overly active and they’re the ones that have, pushed up, prices recently. Yeah. That’s right. Which is also what’s, I think, partly leading to our rental crisis.

So, Terry, just in closing there, what would you say to budding investors out there or somebody planning to continue to build their portfolio who is starting to hear all these rumblings again about negative gearing and that tax policy being tinkered with?

What would you say to them if they were maybe thinking of holding off, and waiting to see what happens, which some investors do love to do.

Yes, well a lot of wanna be investors are wait and see people. People who never take action. But, look, I think if an investor is thinking, and is well researched, and is buying in the right places, negative gearing doesn’t really become a factor because, in my view, good investing is buying in say a good strong regional area where rental yields are higher, housing is more affordable, and you should be able to buy in a growth area that’s going to give you good capital growth with a rental yield that takes care of most of the costs of ownership.

So in those circumstances negative gearing is not a factor. So it doesn’t matter to an investor who makes those sorts of decisions whether negative gearing exists or not. Mhmm.

Thank you so much, yet again, Terry, for your wonderful words of wisdom and expert insights.

You’re most welcome, Kate.

 

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