Beoz

More to the point, if the government are serious about tax cuts ........


The report said that negative gearing costs the federal government around $4 billion in lost revenue a year and noted economists had labelled it as "an unfair and unproductive distortion".

Mind you, I like paying low rent for a nice pad.

Swerv-o

I was having this discussion at the weekend with my GF's brother - he's an ex-investment banker, and a pretty bright spark. He said that he didn't really understand why people were willing to indebt themselves and make a loss just to beat the tax man. The upshot of the conversation was that he warned against getting into investment through negative gearing.


S

Amazulu

That's why I got out of it

Right now there are much better ways to invest to get a decent return

Beoz

Me too. It beats the sh*t out of me why people think getting tax returned is a good thing when you haven't made any cash with your investment in the first place.

Swerv-o

What are you looking at? I have been investigating Tax Paid Investment Bonds with an Index Tracker. Excellent returns at the moment, and no CGT to pay on maturity.


S

Amazulu

Blue chip shares - mainly Australian banks

Good dividends that are fully-franked

CGT payable unfortunately

Amazulu

It works when property prices are rising sharply - which they are not doing at the moment in most places

Swerv-o

Yes, it seems very reliant upon large house price increases. This was why GF's brother was not recommending it now - he feels we won't be seeing the capital gains needed to make it a value proposition now.

Though I notice that many banks are still spruiking it as a something that you need to be getting into. I guess the absence of any real tax efficient savings means there's very few other places to park your cash.


S

Beoz

Tech stocks would have been a good one if you gone in 6 months ago. Microsoft gone from 36c to 43c. Apple from 72c to 95c. Facebook from 55c to 71c.

Swerv-o

With hindsight, yes that would have been great! I'm not really into picking individual stocks - tried that before and it ended in breaking even - or even letting a fund manager do it for me. There's a lot of evidence to support the assertion that over time, managed funds perform no better than a pure index tracker.

The Vanguard Australian Share Index has grown at nearly 12% since inception, while the international index is touching 17%. I was planning to package an Australian and an International index into separate Investment Bonds, and add the maximum each year, keeping it running for about 20 years. Hopefully, over time, it should lead to a couple of nice lump sum payments all cunningly free of CGT around retirement time.


S

Andrew K

There's a nice little graph here on price rises in Sydney with a warning of a bubble:

Property prices about to drop without interest rate cut, warns report

Aussies don't like buying investment property unless it's negatively geared. They curse when tax is paid a cash-positive investment property. Its a capital gain game all the way for them. Should mention I'm a property lawyer who moved to Sydney about 8 years.

Foreign non-residents can legally buy only new property. As someone rightly said, the approval process is a rubber stamp exercise. There's lots of talk of foreigners buying second-hand property too because the penalty is a fine and maybe having to sell the property but FIRB doesn't enforce the rules so the fine is seen as a cost of doing business. Property in Oz is attractive for Chinese because in China they only get a 20 or 30 year leasehold title from the state. There is no guarantee of renewing the leasehold and so they can't pass a property to their children. They also want to acquire assets outside the clutches of the communist party state. So it is a freehold title that no-one can take away from them that is the key attraction for foreign investors from China. Aspects we take for granted. Also investment returns are almost nil in China so a 3% return is not bad either.

Beoz

Wouldn't it be more attractive for a chinese investor to invest in somewhere like the UK? In theory foreign investors shouldn't be able to take advantage of NG as they have no local income to offset the lose against.

Andrew K

Chinese don't care about NG. Security of property title with a little return is enough. As for Oz over UK: Oz is much more familiar and oz is selling to them. Lots of Chinese migrated to oz. lots of Chinese bought property in oz. lots of Chinese students in oz and hoping to get job and visa in oz. parents can buy apartment for kids to live in while studying in oz. investment and migration in one package. Oz property developers are all in china running investment fairs. Competing with Canadian developers. Canada also attractive for same reasons listed above. Most oz property developers of apartments would go bust if Chinese stopped buying. Over 90% of Meriton's buyers are Chinese. None of this applies to UK.

Beoz

Well there's a business opportunity for UK property developers. Go sell property to the chinese. What's the selling point against Australia and Canada? NO negative gearing - therefore higher rental return.

And with all due respect, there are plenty of Chinese in the UK. Plenty of Chinese students and the like.

Rachelanna

Older people got into negative gearing in Aus when the tax rates and interest rates were much higher. The property market, in Sydney at least always goes up in the long term. Also many people like the option of adding value to their property which is not possible with shares etc. Many older migrants were not highly literate in English and liked the notion of exercising direct control over their investment in property.