To keep neg­a­tive gear­ing or not

Western Suburbs Weekly - - Opinion -

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.

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