Expert Advice

What will happen if Labor stops negative gearing?

B2B Editor11 April 2016

What will happen if Labor stops negative gearing?

Firstly let me state very clearly that I am not a part of any political party.

I was in real estate last time Paul Keating stopped negative gearing in the late 80’s and that was such a disaster it was cancelled in less than 12 months. It ended because investors stopped buying residential property and rents went up alarmingly as this was the principal reason the then Labor government canned the tax.

It seems as every time a so called “property boom” comes to an end politicians want to add an extra tax to property. The press love to talk up property booms but fail to mention the fact that the median sale price in Sydney did not rise from 2003 till late 2010. That is tough going for the investor getting a return of less than 3%.

For the past 30 years a third of Canberra’s population have lived in rental
properties this demand has remained fairly constant. Without negative gearing investors will not invest in residential stock and with the constant demand from tenants this will push rental prices up.

The second part of the argument to stop negative gearing is that negative

gearing is pushing up the prices for 1st home buyers. The major reason that first home buyers struggle is that taxes and charges from governments at all levels add to the cost of a new home. The HIA worked these costs out a couple of years ago to be around $135,000.

My gut feeling is the residential real estate market fits into 3 main categories each taking up about a third of the market 1st home buyers, existing owners changing property and investors. So the impact of taking a third of your buyers out of the mix will have a big negative impact particularly for established homes. Labor is saying investors can still buy new properties but once the investor decides to sell, they really will not be able to sell that property to another investor so where will their capital growth come from?

Negative gearing makes investing in real estate a viable option and it keeps rents down because it adds to the supply. Other than super how are working class Australians going to provide for their retirement so they will not require a government pension?

I run a large property management portfolio in the ACT and I can tell you the vast majority of my owners are working Mums and Dads that have taken on an extra mortgage. They would not have been in a position to buy an investment property without negative gearing.

The above is my personal opinion based on a 30 year career in Real estate and I am not a financial planner.

Always happy to answer your real estate questions
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Peter Maloney

Contact Maloney’s on 6232 0100
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