What's your prediction on the Australian Dollar?

[drsmithy]

It is believed that if investors were removed from the market rents would rise as a consequence. Whether that actually would happen is a try it and see issue.

Implicit in this belief is the premise that landlords are currently charging their tenants less than market rates.

Can any of the landlords who are doing this please raise their hand ?

 

[footy99]

Returns are only negative because of our property bubble. If property prices reverted to mean (ca. 50%+ drops), then rental returns would not be negative.

That'll take getting the Aussie dollar back well over parity and interest rates back around 7-8%. Seems a long game. The former may not be completely necessary if foreign buyer restrictions are enforced.

While the rest of the world sees our prices 25% cheaper than a few years ago and we can pay less for a property that nominally costs $100K more due to our lowest ever interest rates, it's hard to imagine property reverting to the mean.

 

[amaroo]

Returns are only negative because of our property bubble. If property prices reverted to mean (ca. 50%+ drops), then rental returns would not be negative.

Negative gearing does not improve supply in any meaningful way. NGers *overwhelmingly* buy established properties (something like 90%).

NGers also need employment, and many of them work in the construction industry. If one pillar falls, they all do .... wages - how many NGers want to work for less?

 

[drsmithy]

That'll take getting the Aussie dollar back well over parity and interest rates back around 7-8%. Seems a long game. The former may not be completely necessary if foreign buyer restrictions are enforced.

While the rest of the world sees our prices 25% cheaper than a few years ago and we can pay less for a property that nominally costs $100K more due to our lowest ever interest rates, it's hard to imagine property reverting to the mean.

I'm sure people thought the same thing everywhere else it happened in the last decade (or, say, even here back in the 1890s).

Negative gearing is reliant on an income stream to cover the losses until tax return time. As unemployment spikes while everything mining related winds down, what do you think is going to happen ?

 

[dajop]

I wonder if negative gearing and proposals for its abolition are that well understood. I think those advocating for its abolition are not proposing to remove deductions against the income generated by the investment, but instead are advocating that losses from the investment should no longer be able to be deducted from other sources of income.

I am sort of on the fence with it. However one thing that could be examined is deductible items. For example travel expenses. Why should someone who lives in Sydney who chooses to invest on a property in Broome (or someone who lives overseas and owns rental properties in Australia) get deduction for travelling to their property to check on it? You can't claim deductions for travelling to (regular) place of employment - source of employment income.

 

[drsmithy]

I wonder if negative gearing and proposals for its abolition are that well understood. I think those advocating for its abolition are not proposing to remove deductions against the income generated by the investment, but instead are advocating that losses from the investment should no longer be able to be deducted from other sources of income.

Correct.

This intent is frequently misrepresented as wanting to remove ALL deductibility of costs, which nobody seriously wants to do.

 

[drron]

Another big difference is you can't get 100% loans to buy shares.

Negative gearing is primarily a tax rort for the wealthy. It does next to nothing to increase supply.

Though you could limit negative gearing to new construction.

 

[drsmithy]

Though you could limit negative gearing to new construction.

That would certainly be more in line with its supposed objective.

 

[JohnK]

I'm not an economist, or an accountant. So I can't understand the argument.

I see it that if you take out all the investors, property prices would fall, and then those that are renting could actually afford to buy?

Is negative gearing restricted to new build only? Otherwise if it applies to existing properties, why should 5 investors, none of whom want to live there, push up the price for the battler that does want to live there?

Switzerland has rent control. That seems a fair system.

Switzerland also controls who can purchase property? I could be wrong but a foreigner would need to be a Swiss citizen who has lived there over 20 years?

There is one reason why property prices are up in Australia. Foreign investment.

I am not an expert but I have a friend at work who reads a lot and he has mentioned to me there have been or will be property developments in South Brisbane that will not be sold in Australia. That is extremely sad if true.

 

[amaroo]

Negative gearing cost to taxpayers is dropping because interest rates are dropping.

Pity we can't get Welfare to have a similar adjustment - hit the link and see the cost of social security and welfare v total income.

Budget 2013: where will your tax go? - Budget 2013 - ABC News (Australian Broadcasting Corporation)

BTW negative gearing deductions are a fraction of work related deductions ... maybe we should go all out and destroy that part of the economy as well :idea:

 

[drsmithy]

Switzerland also controls who can purchase property? I could be wrong but a foreigner would need to be a Swiss citizen who has lived there over 20 years?

Not quite that strict, but certainly stricter than Australia (and almost certainly more strictly enforced, which is the real problem here).

There is one reason why property prices are up in Australia. Foreign investment.

No it's not. Foreign investment is an issue, but it's a fairly recent one and contained almost entirely to Sydney and Melbourne.

I am not an expert but I have a friend at work who reads a lot and he has mentioned to me there have been or will be property developments in South Brisbane that will not be sold in Australia. That is extremely sad if true.

This has already been happening in Melbourne and Sydney for years.

 

[drsmithy]

Pity we can't get Welfare to have a similar adjustment - hit the link and see the cost of social security and welfare v total income.

Budget 2013: where will your tax go? - Budget 2013 - ABC News (Australian Broadcasting Corporation)

The largest chunk of it goes to the aged. Seems ditching the pension would actually be the most effective single step in reducing the welfare bill. Might teach people a bit more responsibility and self reliance during their working lives as well.

BTW negative gearing deductions are a fraction of work related deductions ... maybe we should go all out and destroy that part of the economy as well :idea:

I'm a little unclear on how removing distortive tax rort incentivising malinvestment would "destroy" any part of the economy.

There are plenty of blatant rorts in work-related expenses as well. Novated leases, for example.

 

[andye]

3 reasons property prices are as they are in Sydney (in order in my opinion)
1) not enough dwellings especially as Sydney expected to grow enormously
2) the lower CGT on property makes them tax advantageous to local investors (also lots of money from SMSF)
3) foreign investment

I would suggest CGT on property (except family home) to gradually build up to top personal tax rate
I'm not sure how feasible this is, but for CGT to be collected in Australia for all Australian property sales even if foreign-owned (ie no double taxation arrangements)
You could finesse this by having discounted CGT for new-build properties to encourage new homes to be built

One of the biggest problem for the Australian ageing population in the next 30 years is that fewer and fewer will own their own home. Paying rent while on a pension is not a recipe for a comfortable old age.

 

[amaroo]

I'm a little unclear on how removing distortive tax rort incentivising malinvestment would "destroy" any part of the economy.

You forgot the - IMO bit.

Employment, housing, wages, standard of living ... are a few that you've ignored.

 

[PLANT]

Um I got 100% loan for share purchase..... Credit card 0% for 18 months on balance transfer.... Cashed out/flipped/shares purchased 100% loan done!
Now get back up AU dollar so I can buy more american shares interest free

 

[Isochronous]

All tax is state-sanctioned theft. We need to get government back to doing the minimum that the market won't - that means national security, immigration/border control, quarantine, police, and courts.

Scrap all welfare and the minimum wage, to be replaced by a negative income tax. Get the federal government out of health and education altogether. No more free schooling or medical care. Even Sweden charges the equivalent of A$30 to see a doctor or go to the hospital emergency room.

 

[MEL_Traveller]

Switzerland also controls who can purchase property? I could be wrong but a foreigner would need to be a Swiss citizen who has lived there over 20 years?

There is one reason why property prices are up in Australia. Foreign investment.

I think for Switzerland it's permanent resident (not sure about citizens of the Eu?) My friend was living in Switzerland for 15 years before being able to buy a property there... which they have to live in. They can't rent it out unless approved by the government (and they have to have a good reason, like being stationed overseas by a Swiss company or something).

I don't believe the sole reason for high property prices is foreign investment. I think ultra low interest rates allow investors to buy... and the competition drives up prices. They rent out these properties and if they make a loss who cares? They write it off tax. That means less tax revenue for the services everyone else needs.

Maybe that's off-set by more construction jobs and tax income from that.

 

[drsmithy]

You forgot the - IMO bit.

Negative gearing is a distortion. It incentivises losing money through "investment" in existing property primarily for the purposes of reducing taxable income, rather than providing appropriate rental stock.

Employment, housing, wages, standard of living ... are a few that you've ignored.

Ignored how ?

 

[amaroo]

Ignored how ?

The pillar thing I mentioned up stream...

 

[drsmithy]

All tax is state-sanctioned theft. We need to get government back to doing the minimum that the market won't - that means national security, immigration/border control, quarantine, police, and courts.

Can you please explain why the market cannot provide these functions and why you still live here and not one of those countries without any tax ?

Scrap all welfare and the minimum wage, to be replaced by a negative income tax. Get the federal government out of health and education altogether. No more free schooling or medical care.

Is there any prosperous, civilised country of significance that does this ?