Negative gearing. It’s on everyones lips…

Until recently, most people didn’t even know what negative gearing meant, now that has all changed.

So the basic argument is, make drastic changes to negative gearing and property prices will go down making it less attractive for investors to own property and make it more affordable for 1st home buyers.

That’s all well and good but someone has been forgotten in all this debate and that’s the people who currently own and occupy their homes.

Imagine this. You’re about to retire at the age of 65, you own your property with a small mortgage but no investments other than superannuation and a small amount of savings. A regular couple with most of your wealth tied up in the value of your family home…..
All of a sudden 20% of the value of your family home is wiped off over night. To put that into perspective if you had a home valued at $500,000 all of a sudden it is worth $400,000.

Or worse, a person has purchased recently and the value of the property drops below what they owe the bank.

Sound like a dooms day scenario?…. Well according to many experts is a VERY real possibility.

Speaking on Radio 2GB, Aussie Home Loans founder John Symonds said  that abolishing negative gearing will drive down home values by as much as 20%.

Renters will also suffer. Less property investment will push up rents by an average of $2600 a year, forcing an extra 70,000 households into rental stress.

I know a lot of residential property investors and I can tell you first hand, they are not ‘wealthy investors’ like is being suggested in the media. They’re hardworking people just like you and me who have invested wisely.

I don’t disagree that saving and owning could be made more affordable for 1st home buyers but why not look at more realistic options like abolishing stamp duty on ALL purchases for first home buyers?

On a $400,000 property the stamp duty (tax) is in excess of $16,000. Not having to part with this money would make it easier to save, renovate and importantly buy a home. It would ensure larger deposits can be made which would decrease loan amounts and dependency on mortgage insurance with lenders by FHB.

Before going to extremes we should look at a broader range of options. I agree that negative gearing needs reform but potentially as a part of wider tax reform rater than going to extremes.

 

Overall the view of most people regarding Australian property is incorrect being that it is assumed that you buy a property and the value grows. That only applies to a portion of the market. Take a look at the values of say, apartments in the Adelaide CBD where there are multiple buildings where the value has dropped below the purchase price and the only thing the owners can rely on to recoup some money is tax breaks.

There has to be a better way.

DR

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s