Not every property makes a profit after purchase cost, holding costs, sale costs
Neither does every share purchase. But the point I am making is that you can't have it both ways, you can't claim that a property will be forever negatively geared, without producing a taxable capital gain. Because Inflation will in general push up the rental yield to the point where it is no longer neg geared. The only way the next owner could neg gear it is if he paid a higher price, which would create a taxable capital gain. If he didn't pay a higher price he would be positive geared.
If the below doesn't show the property making consistent income loses, then what does it show? How can you separate asset prices and debt
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Because you are trying to say property in general loses money, when it doesn't. To weigh up whether an asset class is a viable investment you need to look at how it would perform debt free, a debt free property is a perfectly sound investment. It is then up to individuals whether they want to add debt based on their own judgement of the risks and rewards.
Its like me saying the aussie share market has lost money for 13 years, because based on a 100% loan at 8% the annual dividends don't cover the interest charges. the fact is that statement is false because a) the dividends have increased almost every year and even if you took a 100% loan it would be positive now, b) the fact that I'm judging whether it is profitable based on debt is the wrong way to look at it.
The below household debt to GDP ration seems to show a very strong correlation between increasing debt and house prices.
If you put up a price chart of crude oil, Iron ore, gold, Big macs, 600ml cokes, salmon and a whole host of other items you would see the same correlation.
There's been longish periods where rental increases have been stagnant to negative, especially after inflation.
you keep mentioning "after" inflation, as if the a neg geared properties income needs to outpace inflation to become positively geared, when inflation actually increases the rental yield while the repayments to the bank stay the same. Also Inflation is one of the reasons property investment is preferred to cash, as inflation decreases the value of cash, your property investment will maintain its value and the income will increase with inflation, so you position is maintained.
If nearly 50% of IP loans are I/O how does the principal get reduced?
even if it wasn't reduced, given time the property would still become pos geared, But I know I have reduced the amount of my I/O loans you can make lump sum payments into it whenever you want, you can also hold money in an offset account rather than pay it off directly, a lot of people prefer to do this. most people will wait till their non deductable debt is cleared though.
I/O loans also increase the level of gearing available for the investor, since you nearly double the cashflow available for the loan eg a $450K loan with 5.2% at P/I has repayments of $2683/m. Same loan I/O is $1950/m. Keeping things I/I means you could increase the loan size from $450K to $620K. What proportion of I/I loans have been used to do this?
no doubt they have been, but so what? Don't you think interest only loans are used in all sorts of businesses, the vast majority of business loans are interest only, the idea
Why do people add too much debt? It seems to be a pervasive issue with investment properties in Australia. Could it be the tax system? Say a combination of NG and halving CGT?
All sorts of reasons, feeling that they don't want to miss out, wanting to invest but being undercapitalized, wanting to be look good at BBQ, having confidence in there ability to earn a high income to clear it.
The combination of NG and CGT is available on shares also.