negative gearing

Let’s talk about the proposed changes to Negative Gearing…

 

The property market is the foundation of our economy, and a few days ago, Bill Shorten made some announcements with regards to policy changes that would have affects on Property Investment and Negative Gearing. In a nutshell, the proposed policies would mean that negative gearing would only be allowed on brand new property and the Capital Gains Tax (CGT) concession would be reduced from 50% to 25%. This is a real blow to Australian property investors considering that over 90% of investment properties are bought established, not brand new.

 

 

I guess the main goal here that the ALP are trying to achieve is housing affordability and incentives for new construction, especially in greenfield areas. Here is what I see wrong with this…

– According to statistics, a majority of owner occupier buyers are not interested in living in high density dwellings. The appetite for this type of buyer is for low density dwellings in inner or middle city suburbs with established infrastructure.

– If you think that established houses in inner and middle city suburbs will become more affordable, you are crazy! If anything, many of these types of properties will sky rocket in price based on land value. Why??? Because developers will be snapping these up at top dollar to knock down and rebuild brand new dwellings.

– Initially, we will see new greenfield developments in the outer suburbs flourish. However, we will start to see over supply in the long term and with the lack of infrastructure in these areas, we will see these areas turn into ghettos.

– What will happen to the new investor that enters financial hardship after making a property investment purchase? Now that he is required to sell, who will he sell to? The proposed policies now mean that no investors will be interested in his property as it is now considered established.

– High end investors will completely leave the property market and look for other options that can provide the tax benefits to legally minimise the tax they pay.

– Negative Gearing is something that not just the wealthy do, it gives opportunity to ordinary Australians to get ahead in their investments and self fund their retirement.

 

Something else that should be noted is that when investors purchase investment properties, they are not permanently negatively geared. In most cases, negative gearing is only a temporary strategy and the long term goal is to have these investments providing positive cash flow.

 

Here at The Bare Broker, we do not have any political bias, so I look forward to also providing an analysis of what the current government propose…

 

Dim – The Bare Broker

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