Amazulu

This might have been covered before, what is Negative Gearing?.

seang

from the web - purchasing an investment with borrowed funds where the interest on the borrowing exceeds the income from the investment

Luke I Amyofath

A quote from the sydney morning herald:

Negative gearing means offsetting losses in one area against income from another to reduce tax. An increasing number of Australians understand this from first-hand experience. Most commonly they are using losses from investing in residential property to reduce the taxable income from their job or business. An individual paying the 47 per cent top marginal tax rate - which starts at $62,500 a year - can have the government as almost an equal partner in any losses on his or her investment property. Whatever happens to real estate prices, the tax break is a sure thing. For many Australians it seems more important than the property.

Full story:


http://www.smh.com.au/articles/2003/...?from=storyrhs

bondipom

IMO It is also becoming a political sacred cow that politicians are scared to touch. It may have something to do with the investment properties the politicians own and the donations from the real estate industry that the parties receive.

seang

http://www.propertyinvesting.com/str...egativegearing

ABCDiamond

example:
You buy an Investment house, the interest paid is $1400 per month
the rent you get is $1,000, so you lose $400 per month, (that's the negative bit)
the tax man then gives you up to $200 per month back in tax relief. (depending on your tax rate)
So it now only costs you $200 pm, and hopefully the property goes up in value But also over time the rent goes up, but the interest stays the same or less. Then you begin to make a profit, it then becomes positively geared, and the taxman wants money from you this time.

RichS

the locals have an inbuilt obsession with running property at a loss and getting a tax break. what they fail to understand is that they are still making a loss. they rely on the fact that the capital value of the underlying asset (usually a unit) will rise and rise. They tend to ignore the fact that they are still making a loss, and tend not to look at how much the loss is over time.
If I suggest to anyone that they perhaps buy somewhere and look to make a profit they look at me as if I am stark raving mad.

There are implications in all of this:

1. The property market gets inflated by people negative gearing everything.
2. The government are scared stiff of legislating against it.
3. Lots of people are going to have a lose - lose situation if the air comes out of the property market, primarily because the first place it's going to bite is in Sydney units.

ABCDiamond

Agreed.
Best way is to buy positively geared, in an area that is still going to go up in price. OK, so you pay a bit of tax... but you've still got more left in your pocket

bondipom

Melbourne and Sydney units are already dropping. My own anecdotal evidence is that rents have stayed static since 1997 and the quality and quantity of property to rent has increased. That is in the Darlinghurst/{addington/Bondi areas which are very popular for renters.

One other reason I hear for all the investment property buying is a nest egg for retirement. There are going to be a lot of properties on the market when the baby boom generation retires.

ABCDiamond

Noting the differences in each State, my area has seen rents go up from $185pw to $220pw for a 3 bed house in 2 years, thats a 9% pa rise.

This info from www.rta.qld.gov.au

However units in Northgate, Brisbane, have stayed at $150 pw for last 2 years !

RichS

the only argument I can see in unit purchasing is that it may be something you can give your kids such that they are able to climb on to the property ladder. lets be fair prices are going to virtually rule out home ownership for young people in about 15 years if current trends persist over time.