What if you could only own a PPOR?

[young-gun]

I was doing a bit of reading, and came across a slightly outdated article that outlined how many australians own investment properties.

http://www.prosper.org.au/2011/04/21/negative-gearing-reform-proposals-much-needed/

About 1.7 million property owners used negative gearing in the 2009 financial year, claiming rental losses as a tax offset. This generated a net rental loss of $6.5 billion for the financial year, Tax Office figures show.
They show about 1.19 million Australians own one investment property. About 294,000 have two investment properties, while those with three number 88,300.
Meanwhile, about 14,100 Australians have six or more investment properties, the figures show.

so in total thats approx. 2.06 million properties, whether they be units houses, town houses whatever, that investors owned at this particular point in time.

so my question is(which im sure alot will disagree with) should we even be allowed to own investment properties? or should we be limited to perhaps one per family? if you were to flood the market with 2 million properties around australia prices would crash. making it possible for all those struggling families that aren't investment minded to own a house instead of renting and helping others become wealthy?

now you can make the argument that that's bad luck, and you're motivated enough to educate yourself and take the risk of investing in an IP, but so what, maybe some prefer to not have the financial burden, or a simply to afraid of taking the risk which is fair enough. and you couldnt complain that it removes a form of wealth creation from you, because your own house to begin with would be far cheaper, savings you perhaps hundreds of thousands in some instances, allowing you to save more and invest elsewhere(perhaps not returning the riciculous gains of property in the past, but still returning). ive heard people say "investors are putting an affordable roof over families' heads who otherwise couldnt afford to buy". well if they didnt inflate prices to begin with maybe those families would eb able to get into the market?

this would also limit the potential for a crash, and control house prices, and keep banks a little more grounded. not to mention the gov would have stacks more money.

anyway i have nothing against investors by any means, in fact i intend on investing in property myself eventually, just wanted to get peoples thoughts on this. I'm sure there a flaws and reasons for why this couldnt/shouldnt happen and I'd like to hear them.

 

[Miss Hale]

My initial thoughts... I think it's asolutely fine for people to own an investment property (or several if they want to) but they should not receive favourable treatment like negative gearing etc. Let the market decide the value of property without Govt. interference. There will always be a need for some rental properties for various reasons so we need someone to own IPs to provide the rental properties .

 

[young-gun]

My initial thoughts... I think it's asolutely fine for people to own an investment property (or several if they want to) but they should not receive favourable treatment like negative gearing etc. Let the market decide the value of property without Govt. interference. There will always be a need for some rental properties for various reasons so we need someone to own IPs to provide the rental properties .

the removal of negative gearing would see a hell of alot of people forced out of their IP's.
why do we need rental properties? the only reasons i can think of that people rent is because they are expecting housing to fall to more reasonable prices, they can't afford a house, or they don't want to be weighed down with the responsibility of a reasonably sized mortgage. all of these issues are removed if house prices fell. perhaps some housing for the really low income earners, but thats what housing commission houses are for. I'm not sure if they are owned by the government, or investors, but it wouldnt be difficult for them to just buy up a few more houses to cater for this group.

 

[Ves]

So where do all the renters go in your master plan? Especially the people that do not want to rent a place because they like the freedom of being able to move around when they like.

By the way, if negative gearing only costs the government a maximum of $3 billion (your $6.5 billion figure times the 45% marginal tax rate) how are they saving a truck load of cash? This isn't even enough to fill a third of the much talked about surplus hole. It's just more money for the government to waste on something else if you ask me.

I'll also add that there were countries who do not have negative gearing and had / still have a housing bubble.

 

[young-gun]

So where do all the renters go in your master plan? Especially the people that do not want to rent a place because they like the freedom of being able to move around when they like.

By the way, if negative gearing only costs the government a maximum of $3 billion (your $6.5 million times the 45% marginal tax rate) how are they saving a truck load of cash? This isn't even enough to fill a third of the much talked about surplus hole. It's just more money for the government to waste on something else if you ask me.

I'll also add that there were countries who do not have negative gearing and had / still have a housing bubble.

that was my point, renters would most likely purchase, as the reason for renting is largely due to unaffordability. also as i said, perhaps we could allow one per person, that way there is still supply for the little demand that would be remaining. but even then i think it wouldn't have enough of an affect, as single IP owners are by far the largest portion of homes owned by investors.

I have no doubt they would waste it, but hopefully even a small margin of it would go towards something of use.

then perhaps negative gearing isnt the largest reason for people owning IP's? other countries obviously still have plenty of RE investors despite the lack of tax breaks. or maybe I am wrong in assuming that investors have helped inflate the prices so heavily, but i wouldve thought the purchase of 2 million residences would most certainly have a large affect over the years.

 

[Ves]

that was my point, renters would most likely purchase, as the reason for renting is largely due to unaffordability. also as i said, perhaps we could allow one per person, that way there is still supply for the little demand that would be remaining. but even then i think it wouldn't have enough of an affect, as single IP owners are by far the largest portion of homes owned by investors.

I have no doubt they would waste it, but hopefully even a small margin of it would go towards something of use.

then perhaps negative gearing isnt the largest reason for people owning IP's? other countries obviously still have plenty of RE investors despite the lack of tax breaks. or maybe I am wrong in assuming that investors have helped inflate the prices so heavily, but i wouldve thought the purchase of 2 million residences would most certainly have a large affect over the years.

I can't answer for everyone but I didn't invest in property because of the tax benefits. In my opinion that is lunacy. I bought because I thought a newly renovated one bedroom unit worth $130k renting for $150 per week was pretty good value in Ballarat. Probably won't shoot the lights out, but rent pretty much pays the mortgage. I only utilised negative gearing in the first year. I paid down my debt heavily to increase the cash flow. I don't think there is much downside in this area.

I think housing is so unaffordable to a lot of people because they struggle with the concept of sacrificing the pleasures of today, to save for expensive long-term purchases like property. They also have unrealistic expectations for their first purchase. I gaurantee that if housing prices were 30-40-50% cheaper people would be still complaining it was all too hard.

I don't see why we need to punish those who want to create wealth. Perhaps limit negative gearing but not asset ownership.

I would have thought that those who invest early and frequently and do it well were saving the government money because they will never require the age pension.

 

[young-gun]

I can't answer for everyone but I didn't invest in property because of the tax benefits. In my opinion that is lunacy. I bought because I thought a newly renovated one bedroom unit worth $130k renting for $150 per week was pretty good value in Ballarat. Probably won't shoot the lights out, but rent pretty much pays the mortgage. I only utilised negative gearing in the first year. I paid down my debt heavily to increase the cash flow. I don't think there is much downside in this area.

well there you go you are a case in point, not all investors are concerned about the ability to negative gear, hence the inflation of property prices overseas from investors.

I think housing is so unaffordable to a lot of people because they struggle with the concept of sacrificing the pleasures of today, to save for expensive long-term purchases like property. They also have unrealistic expectations for their first purchase. I gaurantee that if housing prices were 30-40-50% cheaper people would be still complaining it was all too hard.

agree to an extent, but i still think they are unaffordable, i honestly don't know how guys earning 60k a year with 3 kids at the age of 38 for example can manage. either they rent, or live in a run down little place on the very very outskirts of the city.

I don't see why we need to punish those who want to create wealth. Perhaps limit negative gearing but not asset ownership.

I would have thought that those who invest early and frequently and do it well were saving the government money because they will never require the age pension.

it's not about punishing them, i was just speculating about what it would be like. keep in mind if you were only allowed to hold one invest property, prices would be down significantly(i think anyway) and all those investors would have alot more play money to invest in other ventures. it may even be better for the economy overall as people invest into business ideas etc and increase employment.

 

[Julia]

So where do all the renters go in your master plan? Especially the people that do not want to rent a place because they like the freedom of being able to move around when they like.

By the way, if negative gearing only costs the government a maximum of $3 billion (your $6.5 billion figure times the 45% marginal tax rate) how are they saving a truck load of cash? This isn't even enough to fill a third of the much talked about surplus hole. It's just more money for the government to waste on something else if you ask me.

I'll also add that there were countries who do not have negative gearing and had / still have a housing bubble.

I think housing is so unaffordable to a lot of people because they struggle with the concept of sacrificing the pleasures of today, to save for expensive long-term purchases like property. They also have unrealistic expectations for their first purchase. I gaurantee that if housing prices were 30-40-50% cheaper people would be still complaining it was all too hard.

I don't see why we need to punish those who want to create wealth. Perhaps limit negative gearing but not asset ownership.

I would have thought that those who invest early and frequently and do it well were saving the government money because they will never require the age pension.

+1 on all the above comments.

Let's remember that many people who are renting have never done otherwise and have no hope/aspiration of owning a home. They live from week to week on their low incomes for a variety of reasons. They would never put together even the most minimal deposit to buy property.

Young gun, you're perhaps making the fundamental error of attributing your own initiative to the population at large. It just ain't so.

 

[Smurf1976]

There are many people who, for whatever reason, prefer to rent and as such landlords are providing a legitimate service by investing in residential property.

A classic example of someone I know. Lives in Melbourne but has spent the past 10 months working in Hobart, now returning to Melbourne. Needless to say, he rented a house since buying one for that length of stay would be just silly, as would spending that long in a hotel.

I can follow an argument against those who simply speculate on property, leaving the place empty and not offering it for rent. But those providing rentals are simply running a legitimate business providing a service which many people wish to purchase.

 

[trainspotter]

Rent a property for $400 per week or own your own home for $500 per week ..... Hmmmmmm let me think about that for a nano second. *GOSH*

 

[andymac4321]

Interesting topic. My first thoughts are
1/ If governments can restrict number of investments then this could expand to other asset classes. Shares, Art, Cars
2/ Government can dictate how you should invest? e.g. you must buy government bonds. I suspect this is a future Super change.
3/ How does the government control it? Husband and wife buy a house each and then one each for the kids.
4/ Does this also include restrictions to companies and trusts. As most serious investors use these vehicles for asset protection. Will the same rules apply.

Overall I am against the government dictating how I invest my money. As a property investor negative gearing is not the main part of my strategy. Paying down the properties to be cash flow positive.

 

[numbercruncher]

Rent a property for $400 per week or own your own home for $500 per week ..... Hmmmmmm let me think about that for a nano second. *GOSH*

You own zip until you stop renting Money from your money dealer

But what im sure you meant is be in the process of owning your own home ....

 

[trainspotter]

Interesting topic. My first thoughts are
1/ If governments can restrict number of investments then this could expand to other asset classes. Shares, Art, Cars
2/ Government can dictate how you should invest? e.g. you must buy government bonds. I suspect this is a future Super change.
3/ How does the government control it? Husband and wife buy a house each and then one each for the kids.
4/ Does this also include restrictions to companies and trusts. As most serious investors use these vehicles for asset protection. Will the same rules apply.

Overall I am against the government dictating how I invest my money. As a property investor negative gearing is not the main part of my strategy. Paying down the properties to be cash flow positive.

Great first post !!!! Cash flow positive is the rule right now.

 

[trainspotter]

You own zip until you stop renting Money from your money dealer

But what im sure you meant is be in the process of owning your own home ....

Dude ........ bank managers fall over themselves when you can show them proven mortgage repayment history. It is the way of fiscal policy within this country. Like it or not that is how it is. Owning your own home is renting from the bank rather than paying it off the interest component of an investor. Get a grip.

 

[andymac4321]

Rent a property for $400 per week or own your own home for $500 per week ..... Hmmmmmm let me think about that for a nano second. *GOSH*

Don't forget to add $237/Month on services paid by the landlord.

Insurance $25/Month
Rates $72/Month
Water Service $40/Month
Repairs $100/Month

 

[numbercruncher]

Dude ........ bank managers fall over themselves when you can show them proven mortgage repayment history. It is the way of fiscal policy within this country. Like it or not that is how it is. Owning your own home is renting from the bank rather than paying it off the interest component of an investor. Get a grip.

So in your own words owning your own home is renting from the bank - glad you have a " grip " on it Dude.

 

[Glen48]

Investment Property is a think of the past now will be for a long long time.

 

[trainspotter]

So in your own words owning your own home is renting from the bank - glad you have a " grip " on it Dude.

Nein Nein Nein ....... you have missed the whole thrust of my reposte', by PROVING you can handle a repayment histroy and fiscal responsibilty you are more likely to engage in a meaningful obligation to the bank who will lend you money to get where you need to be. DEBT is not a dirty word. It is a means to an end. Generations of people doing this has proven it is mutually acceptable.

Which would you rather? Paying off someone elses mortgage for 21k per annum (which means nothing as you have no asset base) or for 26k own your own home ?? (and have a repayment history that the bank will lien on?)

So glad your "grip" is substantial.

 

[numbercruncher]

Nein Nein Nein ....... you have missed the whole thrust of my reposte', by PROVING you can handle a repayment histroy and fiscal responsibilty you are more likely to engage in a meaningful obligation to the bank who will lend you money to get where you need to be. DEBT is not a dirty word. It is a means to an end. Generations of people doing this has proven it is mutually acceptable.

Which would you rather? Paying off someone elses mortgage for 21k per annum (which means nothing as you have no asset base) or for 26k own your own home ?? (and have a repayment history that the bank will lien on?)

So glad your "grip" is substantial.

Using your exact specific example i'll take the 26k option ....

Now I wonder if we asked the same question To say the average Victorian punter who 12 months ago paid 500k for a house plus 35k in interest plus 20k duty rates plus maintenance plus Insurance etc 0nly to the find your property now worth 7pc less .....

Thats like 100k ! Surely going to the Casino would of been more fun? And with an economic climate that it is I dont see the property specualtor 2011 vintage being a winner anytime soon ...

And gawd forbid should he become a distressed seller theres more massive fees to sell ...

Oh well play with fire expect to burn your fingers

 

[trainspotter]

Using your exact specific example i'll take the 26k option ....

Now I wonder if we asked the same question To say the average Victorian punter who 12 months ago paid 500k for a house plus 35k in interest plus 20k duty rates plus maintenance plus Insurance etc 0nly to the find your property now worth 7pc less .....

Thats like 100k ! Surely going to the Casino would of been more fun? And with an economic climate that it is I dont see the property specualtor 2011 vintage being a winner anytime soon ...

And gawd forbid should he become a distressed seller theres more massive fees to sell ...

Oh well play with fire expect to burn your fingers

Whoooooooooaaaaaaa dude ......... I have never advocted for nupties to invest in property at the height of a boom cycle. I have adopted the more measured approach. I also have covered this subject on many occasions that Lemmings will always fall off a cliff. Same people who invesed in Western Kingfish when it floated. WKL I think it was called ..... do the research. 8 million gone in less than 6 months.

Property is NOT for everybody .... I have been doing this for 23 years and I am still learning objective outcomes. I am not right on everything I say nor have I implied as such. It is a black science that I try and steer people through pitfalls and possible retaliations depending on circumstances. Not once have I tried to tell FHB to "rush" out and put a noose around their necks.

Easy does it