Andrew Bell’s Market Update: Negative Gearing Affects You!
MARKET WRAP: Issue 13: June 23rd 2016
It has been an impressive six months for the Gold Coast Property Market and the foundations are solid as we now move into the second half of the year.
Obviously, there has been a lot of debate regarding the issue of negative gearing. I see the taxation office has released figures showing that the value of rental losses claimed is actually falling and rental profits declared are rising. The cost to the Federal Budget of negative geared rental property deductions has fallen 12.5% and is the lowest level in four years because of record low interest rates. A big benefit, of course, has been lower interest rates, which mean significantly lower claims for deductions.
A record 776,672 tax payers earned a net profit from their investment properties in fiscal 2014 which was an increase of 44,322 from the year before.
Negative Gearing Affects You
One of the country’s leading economic research houses, BIS Shrapnel, have recently released a report into the prospects of the proposed changes to negative gearing and they find that limiting tax deductibility of negative gearing residential investment properties would have consequences that go well beyond any tax saving to the federal budget. The report finds:-
- Rents will rise by up to 10% per annum
- New home building will shrink by around 4% nationally or 7,200 dwellings a year.
- GDP would shrink by around $19billion on average, equating to some 1% of Australia’s 190billion annual income.
- 175,000 fewer jobs will be created over the next 10 years, resulting in unemployment rising.
- Government revenues across a range of taxes would shrink by $1.65billion per annum.
- 70,000 extra households would be pushed into housing rental stress.
- Finally, if the Government were to compensate these stressed households, it would require an additional subsidy outlay of $650milliion per annum.
The report says that the impact would go well beyond any savings of the income tax concession to a multitude of unintended consequences
How Negative Gearing Affects Retirement and Tenants
It seems to me that with an economy that is as fragile as it is, this is not the time to be taking a gamble on such a key platform to Australian’s greatest asset. Other reports state that property values will fall and whilst that might be good for those who don’t currently own real estate, it will greatly affect mature aged Australian’s retirement strategies that are built around their current real estate assets. It should be remembered that much of the borrowings of Australian’s are secured by those real estate assets and that any proposed change to negative gearing will affect that security and as such is highly risky to say the least.
The risk to tenants is even greater. Clearly, if landlords can’t claim losses against their income then they will simply have to turn to the tenants to pay higher rents to make the properties positively geared.
So, there is very little doubt and a lot of evidence from a previous time when negative gearing was tampered with, that rentals will increase sharply and there will be fewer rental properties coming to the market moving forward should this legislation come into place.
As I say, I don’t feel the timing now is right and we should be incentivising all Australian’s to provide for their own retirements so they won’t be a burden on future budgets by way of pensions. We either provide the benefits now so many Australians aren’t on our social security later on or we have a lot more people on pensions that future generations have to fund.
I know it is a very contentious issue and of course nobody knows in advance, but the last time changes were made should have produced a lot of learnings that strongly show that we shouldn’t be tampering with this again.
We Invite You To Attend!
On a lighter note, I would like to mention to you all two fabulous events we have coming up in the Ray White Calendar.
Landlord Symposium – June 25th
The Landlord Symposium is on THIS Saturday, 25th June at the Gold Coast Turf Club.
With the end of the financial year upon us, we felt it an appropriate time to provide our Gold Coast residential property investors with an update on the property market and a deeper insight into aspects of property management that can lead to a better return and the maximum peace of mind.
Ray White Muscular Dystrophy Charity Ball – September 3rd
The second event, which is one of the most important dates in the Gold Coast social scene, is the Ray White Surfers Paradise Muscular Dystrophy Ball. This year the Ball has been revamped to be bigger and better than ever, with a new venue at the recently renovated Jupiter’s Casino, Saturday 3rd September.
Tickets to both events are on sale now through Selena Carson (0410 650 185) or via the website http://rwspevents.com.au.
We look forward to seeing you there. Well, that’s it for now. I will be back with you in July. Stay safe.
Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group