The future of Australian property prices

[banco]

3, As explained above in another post, the tax payer does not pay any shortfall. its simply a recognition that a person made a $200K profit from source A, and a $20K loss from source B, lets charge them tax based on the net amount of $180K. the tax payer doesn't hand over any dollars.

As far as Government revenue goes there's no difference between an upfront tax break and a tax return.

 

[Value Collector]

As far as Government revenue goes there's no difference between an upfront tax break and a tax return.

There is a big difference between the government funding something and the government giving you a tax return.

for example if you earn $30K during the year at mc donalds, but can show you had to outlay $500 on uniforms and shoes, the government will only charge you tax based on your $29,500 net earnings, It would be incorrect to say that the government has funded your uniforms, because they haven't, you paid the full price of those uniforms, the government just let you do it with pre tax dollars

 

[sptrawler]

All of my properties return a positve cash flow, not all of the companies on the asx do.

If all of your properties return positive cashflows, any changes to negative gearing won't be an issue.
All companies that continually run on negative returns, eventually go broke.

To have the Government tell Holden etc, that they can't keep getting tax payers dollars to prop up their losses, while propping up property speculators is a bit rank.

 

[Value Collector]

1, If all of your properties return positive cashflows, any changes to negative gearing won't be an issue.

2,All companies that continually run on negative returns, eventually go broke.

3, To have the Government tell Holden etc, that they can't keep getting tax payers dollars to prop up their losses, while propping up property speculators is a bit rank.

1, I know, I am not defending Neg gearing because I benefit from it, I don't. I am defending it because it is the logical way to tax people.

2, offcourse, but many businesses run at a loss for a loss in the beginning. The properties that are negatively geared today will probably be generating positive cashflows in the future, All my properties started out negatively geared, because to get into property I had to take on debt, but over time I cleared the debt and rents rise, and then bingo I have properties that aren't negatively geared and will continue to pay them selves off using there own positive cashflow

3, Try to understand this, There is a massive difference between holden asking the government to hand over $300 million dollars along with other special tax incentives and a person being charged tax on their net profit. At no stage does the government hand over cash paid by other taxpayers to people claiming a neg cashflow.

 

[sydboy007]

1, I know, I am not defending Neg gearing because I benefit from it, I don't. I am defending it because it is the logical way to tax people.

The Australian NG system is unique in the world, from what I understand. All other countries that have it amortise losses onto the capital base, so t would seem most other countries have a different kind of logic to ours.

2, offcourse, but many businesses run at a loss for a loss in the beginning. The properties that are negatively geared today will probably be generating positive cashflows in the future, All my properties started out negatively geared, because to get into property I had to take on debt, but over time I cleared the debt and rents rise, and then bingo I have properties that aren't negatively geared and will continue to pay them selves off using there own positive cashflow

For companies they carry their loss forward. They generally don't have other income they can offset the losses against and so reduce their tax. Sole traders may be different, but in general terms business losses are carried forward and help to reduce tax payable when profits occur. This would be a much better way for NG to operate than the present system.

Considering over $13B in NG income tax reduction occurred last year, conservatively that means around 30% of it was returned to the "investors" via reduced taxation of other income ie something close to $4B. If even half of that is recycled back into property at say a 90% LVR then that means an extra $18B available to push up house prices. I know it's not quite that simple, but the extra cash flow from the current NG system does allow investors to place higher bids on an asset than they could otherwise afford without the help from offsetting losses against other taxable income.

Loss amortisation would stop this from happening

If the stats are correct then we're seeing NG properties beign sold as new NG investments to the next investor. Nearly half of IP loans are I/O only so the likelihood of the property ever being positively geared is quite low

3, Try to understand this, There is a massive difference between holden asking the government to hand over $300 million dollars along with other special tax incentives and a person being charged tax on their net profit. At no stage does the government hand over cash paid by other taxpayers to people claiming a neg cashflow.

Considering the IP market hasn't made a profit since 2000 one has to wonder what's going wrong.

 

[Ves]

The Australian NG system is unique in the world, from what I understand. All other countries that have it amortise losses onto the capital base, so t would seem most other countries have a different kind of logic to ours.

Japan and NZ also have unrestricted NG systems much like our own. Other countries like the US and parts of Europe have more restricted versions.

Considering over $13B in NG income tax reduction occurred last year, conservatively that means around 30% of it was returned to the "investors" via reduced taxation of other income ie something close to $4B. If even half of that is recycled back into property at say a 90% LVR then that means an extra $18B available to push up house prices. I know it's not quite that simple, but the extra cash flow from the current NG system does allow investors to place higher bids on an asset than they could otherwise afford without the help from offsetting losses against other taxable income.

Loss amortisation would stop this from happening

If the stats are correct then we're seeing NG properties beign sold as new NG investments to the next investor. Nearly half of IP loans are I/O only so the likelihood of the property ever being positively geared is quite low



Considering the IP market hasn't made a profit since 2000 one has to wonder what's going wrong.

This article and the report it covers has some interesting facts.

http://www.macrobusiness.com.au/2013/11/abolish-negative-gearing-to-save-budget-billions/

In the long run it appears that applying NG losses against the cost base or delaying the claim until profits were made would result in a net saving of between $2B and $4B in the long run.

If housing in Australia is really worth $5T then NG tax benefits to investors of $4B doesn't really add that much in transactional power to the system. Most NG benefits / tax refunds probably get offset against the loan balance or spent elsewhere. Anyone going out to buy another property with their tax claim is going to face stamp duty and government charges, I doubt tax benefits would cover this.

You can keep buying NG properties and speculate to your heart's content, but only until you cannot service the loans any more. Tax benefits may help with that.... but at the end of the day, if it's NG you have to come up with the remainder of the cash flow. Obviously investors / speculators are finding a way.

I think there's much larger culprits in the large rises in the housing market than the current tax structure....

 

[McLovin]

Further to my previous post.
A business, is a venture that is expected to return a positive income.
Not a purchase that is expected to return a capital gain.lol
That probably falls under the same umbrella as a painting that you rent out to the museum.
See if you can negative gear that?

They both earn an income, which doesn't cover the carrying costs, why can't I negative gear it.lol

It's a tax perk, as far as I can tell. If the definition of "carrying on a business" is so broad as to include something as passive as residential property investing, then the definition needs to be looked at.

AFAIK (happy to be corrected), there are limits on the deductibility of business (eg you're selling scented candles at the local markets on Saturday) losses from wage income.

 

[Ves]

AFAIK (happy to be corrected), there are limits on the deductibility of business (eg you're selling scented candles at the local markets on Saturday) losses from wage income.

Yeah, there are non-commercial loss tests. If you didn't pass them in the applicable financial year then you would have a carry forward loss quarantined against that business activity until a) it made a profit or b) you passed the tests in future years.

You can offset a loss from your business against your other income if you meet the income requirement (broadly, that your income for non-commercial loss purposes is less than $250,000) and your business passes one of these tests:
It produces assessable income of at least $20,000.
It has produced a profit in three of the past five years (including the current year).
It uses real property or an interest in real property worth at least $500,000 on a continuing basis.
It uses other assets worth at least $100,000 on a continuing basis.

http://www.ato.gov.au/Business/Non-commercial-losses/

 

[Value Collector]

1, The Australian NG system is unique in the world, from what I understand. All other countries that have it amortise losses onto the capital base, so t would seem most other countries have a different kind of logic to ours.



2, For companies they carry their loss forward. They generally don't have other income they can offset the losses against and so reduce their tax. Sole traders may be different, but in general terms business losses are carried forward and help to reduce tax payable when profits occur. This would be a much better way for NG to operate than the present system.

3, If the stats are correct then we're seeing NG properties beign sold as new NG investments to the next investor. Nearly half of IP loans are I/O only so the likelihood of the property ever being positively geared is quite low



4, Considering the IP market hasn't made a profit since 2000 one has to wonder what's going wrong.

1, to me it's logical that each entity pay tax based on its total net profit each year.

2, companies offset the profits from profitable divisions with the losses from the ones that are not yet profitable. if a company or an individual has no other income then neither of them can offset their loss.

3, for it to be a new NG investment there must have been a capital gain, and that would have offset prior losses,

4, find me somebody who bought an investment property in 2000, made the annual rental increases and is not currently positively geared

 

[McLovin]

If housing in Australia is really worth $5T then NG tax benefits to investors of $4B doesn't really add that much in transactional power to the system.

But in any given year not all properties change hands.

Turnover is somewhere around 5-7%/annum, so that $4b is really only being applied to what is available. You could probably trim the actual number once you remove the top end of the market.

Yeah, there are non-commercial loss tests. If you didn't pass them in the applicable financial year then you would have a carry forward loss quarantined against that business activity until a) it made a profit or b) you passed the tests in future years.

Ahh thanks for that.

 

[Ves]

But in any given year not all properties change hands.

Turnover is somewhere around 5-7%/annum, so that $4b is really only being applied to what is available. You could probably trim the actual number once you remove the top end of the market.

The long term average is about 6%, in the last few years it has been closer to 4-5% apparently.

http://www.rba.gov.au/speeches/2013/sp-ag-140313.html

Surely NG doesn't make a gigantic difference in purchasing power of investors on $20-$25B? I think it's way over-inflated to assume that investors use all of the $4B on new purchases.

Sounds like it has more to do with cost and availability of finance, ability to service debt, growth in wages in the last 20-30 years than the taxation system.

If most people think they can make money they'll buy something - the focus was always on the profits, they worry about tax as an after thought. At least that was my experience in doing tax returns in the industry.

 

[Value Collector]

If the definition of "carrying on a business" is so broad as to include something as passive as residential property investing, then the definition needs to be looked at.

There are property trusts listed on the asx that are purely in the business of buying. maintaining and leasing out property, Would you say that is not a business.

same with companies listed that just passively hold other assets such as gas pipelines, railway track etc. By your definition are these not businesses either.

Now certainly a person in the business of leasing out his 3 houses is not as large scale as the asx listed companies but the business model is pretty much the same.

 

[Value Collector]

But in any given year not all properties change hands.

Turnover is somewhere around 5-7%/annum, so that $4b is really only being applied to what is available. You could probably trim the actual number once you remove the top end of the market.

No it wouldn't, there is no way that every neg cash flow investor buys a property every year with their return, so the $4B is not going to be used for that.

 

[McLovin]

There are property trusts listed on the asx that are purely in the business of buying. maintaining and leasing out property, Would you say that is not a business.

same with companies listed that just passively hold other assets such as gas pipelines, railway track etc. By your definition are these not businesses either.

There's a world of difference between the two. If you want to compare a property trust like Westfield or Stockland to some punter who rents out his two bedder in Campbelltown then that's fine by me.

The long term average is about 6%, in the last few years it has been closer to 4-5% apparently.

http://www.rba.gov.au/speeches/2013/sp-ag-140313.html

Surely NG doesn't make a gigantic difference in purchasing power of investors on $20-$25B? I think it's way inflated to assume that investors use all of the $4B on new purchases.

Sounds like it has more to do with cost and availability of finance, ability to service debt, growth in wages in the last 20-30 years than the taxation system.

If most people think they can make money they'll buy something - the focus was always on the profits, they worry about tax as an after thought. At least that was my experience in doing tax returns in the industry.

Sure, look what you're saying makes sense. I personally think the whole NG thing is a bit overdone. I was just playing devil's advocate because it's a Friday.

 

[Ves]

I was just playing devil's advocate because it's a Friday.

Gave me something to think about when I should be working

If property is an unproductive asset, then arguing about property could be considered equally unproductive on that measure. That's my attempt at a Friday joke.

 

[Value Collector]

There's a world of difference between the two. If you want to compare a property trust like Westfield or Stockland to some punter who rents out his two bedder in Campbelltown then that's fine by me.

I am not talking about a company like westfield group, who are involved in management, development and ownership. But more of a property trust (like the westfield retail trust wrt) where they have nothing to do with management, development or anything because they pay a fee to westfield (WDC) to do that, they just sit there and collect the rent and managing their finances and paying dividends.

or,

something like the ethane pipline trust, where the own one asset, with one long term customer, which they pay APA to manage and they just sit there collecting and distributing funds.

 

[trainspotter]

ANZ leaves standard variable rate at 5.88% per annum

UBank has a 5 year rate of 5.56% with $0 application fee.

Weighted average of 8 capital cities UP 9.3% http://www.abs.gov.au/ausstats/abs@.nsf/cat/6416.0

Average house price now $539,466.

The mean price of residential dwellings rose $17,700 and the number of residential dwellings rose by 37,300 in the December quarter 2013.

Yep ..... non productive stuff this property.

 

[McLovin]

I am not talking about a company like westfield group, who are involved in management, development and ownership. But more of a property trust (like the westfield retail trust wrt) where they have nothing to do with management, development or anything because they pay a fee to westfield (WDC) to do that, they just sit there and collect the rent and managing their finances and paying dividends.

So was I.

 

[Value Collector]

So was I.

So besides scale, what's the underlying differences in their operations as opposed to a guy that operates a portfolio of say 4 investment properties.

 

[beachlife]

ANZ leaves standard variable rate at 5.88% per annum

UBank has a 5 year rate of 5.56% with $0 application fee.

Weighted average of 8 capital cities UP 9.3% http://www.abs.gov.au/ausstats/abs@.nsf/cat/6416.0

Average house price now $539,466.

The mean price of residential dwellings rose $17,700 and the number of residential dwellings rose by 37,300 in the December quarter 2013.

Yep ..... non productive stuff this property.

So before the rise the median was 539466-17700 = 521766.

So the quarterly growth was 17700/521766x100 = 3.4%

Do you really think that property will keep growing at this rate? At these rates values will double in around 6 years. I cant see that happening.