To keep negative gearing or not
THE idea of negative gearing is to motivate investors to buy rental properties, which then are rented below the cost of owning.
The investor has two tools to make the investment profitable: negative gearing, meaning that the excess of interest payments over the rental income is tax deductible, or the value increase of the property.
The result is that more rental properties are build, which helps lower-income families and, should things work out, the investor.
If we discontinue negative gearing, we will see house/apartment prices drop as investors will sell rented properties and not buy new ones.
The effect is that owners who came to the market up to three years ago will have a loss, while those who have bought earlier will see a reduction in profit.
The result would be that new investors in rental property lose money if they sell; first-home buyers and renters have the advantage and the construction industry will suffer unemployment.
However, in a longer term, the city will grow and real estate values will go up again (and the construction industry will be better off).
I am sorry for those who are new in this business and sweat now, but the long-term invested people should sit it out and sooner or later there will be a good chance for firsttime buyers to get out of rentals and build equity.
Most other countries do not have negative gearing for rented properties because either there is no tax advantage or, as in the United States, interest on owner- used homes can be deducted. Rainer-Repke, Kallaroo.