Removing 'Negative Gearing' will have a Negative impact!

I realise that in business, it is quite often dangerous to express our political view ‘Publicly’; however, I felt writing this article was essential. It certainly isn’t my intent to sway you. I intend to educate on this issue!

Whether you are primarily a Liberal Party voter, the Nationals, Labor, the ‘Greens’ or any one of our Independent minor parties, it is of no concern to me personally. So that begs the question; ‘Why do I feel it is important to write this article?’

The reason is quite simple! It is because I believe this Election is one of the most important elections we have had for a very long time. Its outcome could have a significant impact on our economy. Now I’m not going to take up your time with a ‘Political Rant.’ However, I am going to discuss the issue that is of the biggest concern to me. That issue is the Labor policy on ‘Negative Gearing’ and the proposed changes. Those changes, from what they have suggested in the media, will have a significant impact on the property market and the economy.

To understand the reason, I believe it will impact us significantly; you first have to follow the underlying principle of ‘Negative Gearing.’ I appreciate and understand that the ‘Negative Gearing’ benefit for investors has been around for a very long time and perhaps does need some review. I agree that it quite possibly could do with an overhaul to potentially stop people from minimizing their income to almost zero by owning multiple properties. However, it is pure scaremongering by the Labor Party for Bill Shorten to suggest that large volumes of people own six or more properties. The percentage of people in this position is meager and would have a minuscule effect on the taxation system. The Labor policy, although it is not entirely clear, is to scrap the ‘Negative Gearing’ opportunity for Investors. The result will have a significant impact on the property market, and it won’t only affect investors. In my view, it is going to change the property market as a whole. It’s going to have a dramatic impact on tenancies and the availability of rental properties, which in turn will have a considerable effect on rental prices.

Now I’m not professing to be an expert on negative gearing, I’m not an accountant, and I don’t have experience in tax law. However, I have been in the property for 15 years, and I have dealt with a significant volume of ‘Investors.’ I’ve run several Real Estate offices, which have included property management divisions. I have been extensively involved in the development industry as a Consultant and Sales Agent, where a considerable portion of that industry deals with investment related property. I understand the market and associated dynamics.

The basic premise of ‘Negative Gearing’ is quite simple. You’re an Investor. You purchase a property for investment purposes, and you derive an income as a result. The current law allows you to offset that income with the expenses of the property. That’s very basic to understand. You derive an income, you have to declare it, and it is taxable. So you’re able to offset that income by the expenses related to the ownership of that property. Now, if those expenses exceed the revenue for the property, then the balance of those expenses can reduce your mainstream taxable income, and you are taxed accordingly.

Now if Labor scraps’ Negative Gearing’, investors will no longer be able to offset their expenses. As a result, investing in property becomes more expensive. Subsequently, you will see a vast decline in the willingness of people to buy a property to make it available as a rental property. The result is quite apparent! A decrease in investment dollars results in a reduction in the number of rental properties within the market. The first supply and demand theory kicks in, which dictates: A decrease in the availability of rental properties equals an increase in rental prices. This concept is universally understood, and many economists have made this very clear in the range of stories that they have published as a result of Labors ignorance in this area.

“Don’t worry if house prices fall, says Bowen” … Meanwhile, shadow treasurer Chris Bowen has downplayed concerns that homeowners may find themselves in negative equity, arguing that they will only incur a loss if they sell.

Original article by Turi Condon, Ben Packham, Greg Brown
The Australian – Page: 1 & 6 : 16-May-19

Based on that principle of ‘Supply and Demand.’ If you own a property and a segment of the market diminishes, the value of your property is likely to decrease. It is a straightforward concept to grasp. However, the Labor Party seems to struggle with this or simply doesn’t care!

My second concern is. If there is a decline in the number of available rental properties, predominantly, this affects the lower too middle-income portion of our society.

Now there is nothing wrong with renting. I know plenty of people who have decided even though they could quite easily go out and buy two or three properties. However, they’ve decided to rent because for whatever reasons this benefits them with their current financial circumstances. The reality is though; there is a significant portion of our society that needs to ‘Rent’ because they cannot afford to ‘Buy.’ I do feel for those who want to get into the market. However, market fluctuations, finance markets, and a whole range of circumstances make it prohibitive. So these members of our community rely on rental properties being available, and the rental market is affordable.

If there is a decrease in the availability of rental properties, this will increase rental prices. That is going to put further pressure on our lower and middle-income families and being honest; the Government doesn’t have the support networks in place to accommodate this issue. Effectively ‘Negative Gearing’ was the Government’s way, when they introduced it many years ago, of getting private markets to supply housing to the rental market. Essentially it is a form of assistance that reduces the economic burden on Government. The current ‘Negative Gearing Policy’ is compensating private markets to ensure adequate housing is available for the ever-growing Rental Market. A ‘free market drives this’ rather than inadequate policy, and property values can respond accordingly.

So if the negative gearing policy is scrapped, as Labor promises it will be, then it will have a significant affect your property prices. Indeed, over the long-term market. Of considerable concern! The Labor Party has not announced what they are going to do socially, or economically, to assist those people who won’t be able to afford the projected rental increases.

So while I started this article by saying: “It is quite often dangerous to express our political view ‘Publicly’! I am hoping that with this Election, you stop for a moment and take a close look at what the policy stands for and how it’s going to affect you personally. So before voting, please do some research, have a chat to your accountant or a friend that’s got an investment property, and get their point of view. Because let me assure you, this is one policy that will harm most people’s most significant assets. ‘Their Home.’

Property
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Removing 'Negative Gearing' will have a Negative impact!