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The future of Australian property prices

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Outer fringe locations are suffering, inner popular locations are actually booming,the new generation value proximity to the cities lifestyle etc
 
Missed this earlier but here is an article on the cost of negative gearing to the ATO.

Bank of America economist Saul Eslake said on Tuesday. ''I have to translate the words 'negative gearing' to people overseas because it just sounds crazy to have a system that rewards people for losing money.
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A few more gems in there including Saul Eslake's take on worst tax decisions in the last 20 years.

http://www.theage.com.au/opinion/po...s-a-key-drain-on-revenues-20130430-2ir6h.html
 
FlyingFox said:
Missed this earlier but here is an article on the cost of negative gearing to the ATO.
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This only highlights the cost of negative gearing to the budget and all taxpayers. Why not try and quantify the cost in terms of what unlimted tax incentives to property investors cost the economy as a whole due to the upward pressure it places on home prices as investors compete against owner-occupiers?

Why not do this as recommended to the Senate in 2008...

In 2008, the Senate Housing Affordability report echoed findings of the 2004 Productivity Commission report. One recommendation to the enquiry suggested that 'Negative gearing' should be capped and that "There should not be unlimited access. Millionaires and billionaires should not be able to access it, and you should not be able to access it on your 20th investment property. There should be limits to it.

Exactly!!! But of course no politician has the backbone to support this recommendation now. The horse has bolted and only a fiscal disaster will see such a recommendation get any oxygen.
 
FxTrader said:
Exactly!!! But of course no politician has the backbone to support this recommendation now. The horse has bolted and only a fiscal disaster will see such a recommendation get any oxygen.
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Currently, the situation looks like disaster waiting to happen.IMO
 
I don't quite understand that argument...

If housing is treated as an investment, then shouldn't it have attached to it the same rules as all other investments, i.e. all interest payments are tax deductible?

If you don't want to have the concept of investment properties then by all means remove negative gearing...
But as it stands, an investment, regardless of whether is stocks, houses or other types, is there to generate profits. So long as that's the case, the interest is tax deductible.

That being said, if you want affordable housing, just don't allow 'investment' properties. (I'm all for this BTW)
 

Klogg, I totally agree with your post. An investment is an investment, regardless of what it is, and it should all be treated the same. Why single out housing investment? How would all stock investors with margin loans feel if their interest was not tax deductible?

As you say, one way to have affordable housing is to build properties under some kind of scheme where investors are not allowed to buy them. Surely that would be fair to those with current investment properties (ie. can be bought and sold as investments) and those who buy the new cheaper homes on the scheme can only sell to owners occupiers. Sounds like a good idea to me however there would be 2 different RE markets. But at least with such a scheme those on low budgets who need somewhere to live can buy into affordable homes.
 

That's great point. I would like to see some socio-economic quantification to this as well. Perhaps as more and more people raise their concerns about this and other policies, we might just get a change.

I agree with you however that this has been left a little too late and either way will hurt a lot of people.
 

They should be. However instead of being able to offset the "negative" amount against other income, the losses should be carried forward.

That way an investor is not disadvantaged and neither is there a great incentive to have capital gains.

Negative gearing is just part of the picture ...
 
FlyingFox said:
They should be. However instead of being able to offset the "negative" amount against other income, the losses should be carried forward.
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But looking at it top down, the individual is still making a profit on the whole. As a result, the interest is just an expense as part of making that profit.

I can argue semantics either way, but I'm all for removing the concept of residential property as investment. The need for affordable housing far outweighs the government's need to turn over a few extra dollars from stamp duty and capital gains.
 
Klogg said:
But looking at it top down, the individual is still making a profit on the whole. As a result, the interest is just an expense as part of making that profit.
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Yes but this skews it in favour of a system of capital gains over rental returns. Moreover a healthy discount is offered on CG.

Klogg said:
I can argue semantics either way, but I'm all for removing the concept of residential property as investment. The need for affordable housing far outweighs the government's need to turn over a few extra dollars from stamp duty and capital gains.
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There have been some great suggestions on this such as having a land tax instead of stamp duty and CG taxes on property. This also helps mobility of workers. Plus a simpler tax system may actually increase revenue due by reducing the collection costs.

You can still have negative gearing with carry forward loses.

However I suspect even these changes, if they were made may not change the situation too much. With the price of money (interest rates) low and going lower, the speculators will always jump in.
 

Not saying getting rid of NG is a good thing but it's not hard to see why the Government might distinguish between shares and property policy wise. Stock investing/prices don't have the same social implications as property investing.
 
banco said:
Not saying getting rid of NG is a good thing but it's not hard to see why the Government might distinguish between shares and property policy wise. Stock investing/prices don't have the same social implications as property investing.
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You don't have to be able to distinguish between different types. Just abolish negative gearing in general. I think many people still don't have a clear understanding of the concept. Most countries allow you to offset expenses against income. If any losses are made, they can be carried forward. Offsetting against other income is restricted.

As far as I am aware, Australia, New Zealand and Canada are among a handful of countries that allow you to offset against other income. This means you can perpetually hold onto an asset that is losing you money while hopefully getting capital gains as long as you can sustain the losses.

With the current interest rates the number might be lower, but you needed ~7%/yr capital gains on a property to break even over a five or ten yr period accounting for losses and transaction costs (I did the math for an investment property I was looking at 2 yrs ago but my memory fails me at the moment).

Considering that house prices have increased at ~CPI for most of history, how sustainable is this? You don't even need a property correction for most investors to be in a bad situation, prices staying stable will do.
 
Abolish all type of negative gearing..shares..properties..the lot
Allow loss to carry forward until you made the gain...

Get rid of 50% CGT concession and charge a flat capital gain rate like 25% or something...

That way rich and poor are on equal footing.....u make $100 bucks you pay $25 bucks tax
You rich and has more capital and make 200 bucks you pay $50 of tax ....

That should be able to fund most service with 10-20bn extra in the coffer
 
There was a piece on toxic loans on today tonight the other night. The story can be found on the Banking and Finance Consumers Support Association http://bfcsa.com.au/index.php/entry...onight-channel-7-toxic-loans-by-adam-marchall.

According to Denise Brailey of BFCSA, there are approximately $100 B worth of toxic loan given out to borrowers who don't have the capacity to pay these back.

While this is a today tonight piece and they are not the most believable source of news, it got me wondering if and how prevalent this practice was in Australia?
 

No problem, who cares about toxic loans any more, banks now get bailed out no matter what they do. i suppose the problem is they ultimately get bailed out with tax payers money, so we all inherit the debt.
 
howmanyru said:
No problem, who cares about toxic loans any more, banks now get bailed out no matter what they do. i suppose the problem is they ultimately get bailed out with tax payers money, so we all inherit the debt.
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That's true. However it would be prudent to keep an eye on the magnitude of the situation. $100 B if the number is correct is very big considering current national debt is ~100-200 B.
 
some might find this interactive chart interesting

http://www.economist.com/blogs/dailychart/2011/11/global-house-prices

Any way you look at it, since 2000 a lot of unproductive debt has been taken on to inflate those house prices.

166% inflation adjusted growth is pretty scary. How anyone can still think it can happen again really must start reading the fine print on all those glossy brochures they're sucked it by.
 
Negative Gearing is going to lead eventually to the destruction of a generations wealth when the party stops. You know its bad when the Swedes are complaining about Australia being expensive. With the Mining Boom on its last legs expect massive budget deficits in the coming years where everyone will have to pay higher taxes as a result. No such thing as a free lunch. Australia has had it good for 20 odd years but its going to take about 10 years to get the country back to a competitive international level, mostly thanks to bank and house friendly legislation and spending. The future is very bleak in my opinion.
 
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