Let’s not throw span­ner into the gear­ing

The Weekend Post - Real Estate - - Front Page -

NEG­A­TIVE gear­ing is such a po­lit­i­cal hot potato it would seem, a sub­ject that cre­ates con­sid­er­able angst in a mod­ern po­lit­i­cal en­vi­ron­ment where ap­a­thy, for many, seems the rule of the day. Often it is asked, “what are the real fun­da­men­tal dif­fer­ences be­tween the ma­jor po­lit­i­cal par­ties of 2016?” Well here it would seem is one of those dif­fer­ences and the fors and again­sts seem to be able to quote fairly equal sets of data prov­ing their own point of view and con­firm­ing their stance on the topic. I did ac­tu­ally dare to com­ment on this topic last year and re­ceived an email, one only I has­ten to add, lam­bast­ing me for the ig­no­rance and lack of fi­nan­cial ex­per­tise they be­lieved I had dis­played in the ar­ti­cle. I think “fool­ish” was the word used. I gath­ered they were not my big­gest fan and that they be­lieved ve­he­mently in the abo­li­tion of tax re­lief. I agreed with very lit­tle in this re­spon­dent’s rant, but they were cor­rect with one as­pect – I am not a fi­nan­cial, ac­count­ing or any kind of tax ex­pert. So in ex­press­ing my opin­ion, as my wonderful ed­i­tor has asked me to do this week, this is ex­actly that, an opin­ion, noth­ing more. My opin­ion, how­ever, is based on com­mon sense and ex­pe­ri­ence, so here goes.

We all un­der­stand that neg­a­tive gear­ing in its sim­plest form in re­la­tion to res­i­den­tial prop­erty in­vest­ment means be­ing able to claim the in­ter­est on loans re­lated to that in­vest­ment prop­erty as a le­git­i­mate ex­pense.

For me the logic be­hind this is quite sim­ple.

Any busi­ness or in­vest­ment has some form of hold­ing costs, and if any profit is made then tax is payable on that profit.

In­vestors are not se­cretly pock­et­ing this amount – banks and lenders would cer­tainly no­tice if they were.

If it sud­denly be­came im­pos­si­ble to claim this as an ex­pense for this in­vest­ment, when in re­al­ity it re­ally was, then the whole amount of rent less usual ex­penses would be con­sid­ered as tax­able in­come, even though it wasn’t.

In my opin­ion, this would be­come fi­nan­cially un­vi­able for many.

I have just summed up a very com­plex topic in a short para­graph, but for me these are the sim­ple facts.

I fully ap­pre­ci­ate many non­prop­erty own­ers or first home buy­ers feel ab­so­lutely no sym­pa­thy for the prop­erty own­ing masses be­ing given this form of tax as­sis­tance to set up their prop­erty port­fo­lios. But is it re­ally ex­tra help?

I would ar­gue it is not and it is a log­i­cal and le­git­i­mate in­vest­ment ex­pense so how can it be taken away?

Let us imag­ine neg­a­tive gear­ing has gone. These ques­tions must then be asked: How many in­vestors will need to sell their prop­er­ties? How many fu­ture in­vestors will be dis­cour­aged?

I would sug­gest the num­ber could be in the tens of thou­sands. Oth­ers will ar­gue that with in­vestor buy­ers out of the way and ad­di­tional hous­ing stock for sale as in­vestors try to es­cape, this could be an ad­van­tage as it will lead to fall­ing house prices re­sult­ing in more af­ford­able hous­ing stock.

Mean­while, the op­pos­ing camp will ar­gue that with­out the cur­rent vol­ume of in­vestors in the mar­ket­place, who ex­actly is go­ing to pro­vide rental hous­ing stock?

I would ar­gue that abol­ish­ing neg­a­tive gear­ing can only be con­sid­ered in tan­dem with a rev­o­lu­tion­ary new pub­lic hous­ing agenda to ad­dress the ab­so­lute as­sur­ance that there will be a fu­ture chronic short­age of rental hous­ing stock, be­cause with­out pri­vate land­lords there would be a real hous­ing cri­sis.

In con­clu­sion, I can ac­tu­ally see both sides of the ar­gu­ment: But would a fall in house prices be an ideal eco­nomic strat­egy?

Also, don’t for­get those tenants who may be strug­gling to se­cure a rental home amid a limited sup­ply, which I be­lieve could be the re­sult of neg­a­tive gear­ing be­ing abol­ished.

The irony for me is if we un­der­take a ma­jor pol­icy strat­egy such as this and prices do get hit, that will fuel a boom in buy­ing and guess what? House prices will re­cover again and those not able to buy will be pay­ing as­ton­ish­ingly high rents due to a lack of sup­ply.

My side says “leave it alone”.

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