Sir lastnail wrote on Feb 12^th, 2013 at 8:13pm:


sure there are, there are no guarantees in life for anything apart from taxes and death. Not everyone is cut out to own a home. That does not mean that property is a bad investment just because some people are stupid ... those in trouble or suffering are those that overcommitted or overextended themselves ...

I have several loans, I also have contingency's in place to cover my mortage for at least 12 months if things turn bad or I break my neck and cannot work, and then I have insurance will cover me for a further 12 months if the first 12 months isn't enough. If 24 months isn't enough then I've probably got bigger things to worry about then money.

Sir lastnail wrote on Feb 12^th, 2013 at 8:13pm:


850 000 people with mortgages means there are 850 000 less people on the rental market . someone has to own the houses you rent. You cannot live in a house that belongs to no one. If your landlord hadn't bought the house you would have no where to live.

My house has been valued at $250k more than I paid for it.

I expect to get at least $200k more than I paid when I sell this year.

I could not have found any route in savings to have earned that amount of money in the same timeframe.

Buy in the right place, near the right places (schools, shops, transport) and you will make money.

no that is 850,000 in mortgage and rental stress !!

The thing is what would happen if there are no tax incentives such as negative gearing etc for landlords to hoard properties which essentially denies them to people who genuinely want to own one ? House prices would plummet because genuine buyers would no longer compete with hoarders and speculators who are willing to pay more !!

My mothers house is worth over 2 million now but is an old dump that you wouldn't want to pay more than 300K for and even then you would feel sorry that you worked so hard for that money. Go figure !!

Sir Spot of Borg wrote on Feb 13^th, 2013 at 5:33am:


you need to consider that before buying  .... lots of investors buying in mining towns will get stung when the mines close down, and sooner or later they all close down ...

$200 000 houses are selling for $1 million while the mine is running because of the exorbitant rents they can charge the miners, but buy the property at $1 million and you'd better not still be hanging onto it when the mine closes or you will be guaranteed to lose a small fortune.

That cant be right because houses and units arent the only form if investment property.

SOB

I'm not forgetting nothing ... and it in itself does not push up prices ... investers do not offer more than owner occupiers because of negative gearing .. investors offer more when they think the property is worth more..... many investors often lose out on purchases over owner occupiers who have offered more.....  in fact investors are usually very astute and try to buy the property for less than market value.

Why abolishing negative gearing makes complete sense

As housing prices plummet in capital cities across Australia, with clearance rates in Melbourne and Sydney slumping to about 50% and prices dropping by 2% in the March quarter, one of Australia’s wealthiest property developers launched a bizarre defence of the negative gearing, the regime that operates to help maintain artificially high property prices.

Eddie Kutner, a former accountant and one of the founders and chairman of Melbourne-based apartment developer Central Equity, wrote an impassioned defence of negative gearing in The Age last week. Central Equity is one of Melbourne’s largest developers, with the Financial Review reporting that it allegedly generated a $59 million profit last year, after being privatised by Kutner and co-founders Dennis Wilson and John Bourke in 2006 for $67.5 million.

“Negative gearing” allows investors to use losses from property investments to reduce their overall taxable income. This effectively encourages property buyers to use debt and “bid up” the price of investment property in the hope of a subsequent capital gain. When utilising negative gearing, an investor will take out a substantial loan over a property, such that rental income is less than interest payments and other costs. The strategy is especially effective when the investor is paying the top marginal tax rate of 46%.

Eventually, when the property is finally sold, the investors will hope to make a “capital gain”. Courtesy of various poorly constructed government policy, capital gains are taxed at half the rate of income derived from labour.

Kutner made several claims in defence of negative gearing which appear somewhat illogical.

Kutner initially claimed that “for a short period, from 1986-88, treasurer Paul Keating abolished negative gearing for property investment, but quickly reinstated it when the disastrous impact of this policy on the housing market became obvious”.

This claim is mystifying given the temporary abolition of negative gearing by Keating was not a disaster at all — rather, as former ANZ chief economist Saul Eslake noted, “rents … actually only rose rapidly (at double-digit rates) in Sydney and Perth. And that was because rental vacancy rates were unusually low (in Sydney’s case, barely above 1%) before negative gearing was abolished. In other state capitals (where vacancy rates were higher), growth in rentals was either unchanged or, in Melbourne, actually slowed.”

Kutner then claimed that negative gearing must be a good idea because politicians like it, stating that “surely if negative gearing didn’t have a positive influence on supply (given that it involves a loss of tax revenue), it would be scrapped immediately”. Kutner appears to be confusing sound economic policy with populist vote seeking. Further, other countries don’t appear to share Kutner’s positive views on negative gearing, with the practice not permitted in most countries, including the US and Britain.

But Kutner’s arguments became even more baffling, with the multimillionaire developer claiming that “simply put, were it not for negative gearing, many investors could not afford and would not invest in property. Developments would not have the finance to proceed”.

Of course, the opposite is true.

Negative gearing encourages investors to pay far more for property than its “intrinsic value” (which is determined by the cash profits of an asset over its life, not merely what someone else is willing to pay). This is because the tax benefits of negative gearing compel investors to borrow excessively to purchase a property, so much so, that the yields on residential property are as low as 2% and most investors make a loss on their property investments.

Removing negative gearing would mean investors are not incentivised to borrow such large amounts and instead, investors would limit how much they pay for a property to ensure that they receive a reasonable risk-adjusted yield. This would make property far more affordable — the exact opposite to what Kutner claimed.

Kutner than noted that “if negative gearing were abolished not only would housing supply decrease and prices increase, but the rental market would be decimated. Sometimes 20 or more prospective tenants vie for one property. The rental market needs more properties, not fewer”. As Eslake noted, when negative gearing was removed in the 1980s, rental prices remained steady or actually fell in the majority of Australian cities. Housing supply itself wouldn’t necessarily decrease — however, the profits of builders such as Kutner’s Central Equity would fall and home prices would become far more affordable.

In 2008-09, negative gearing cost taxpayers about $4 billion — a proportion of that windfall effectively was transferred to developers such as Central Equity who received higher prices for their “off-the-plan” apartment sales.