Negative GearingWhy Negative Gearing is Attractive

Nearly every savvy property investor has heard of negative gearing. Real estate moguls and first-time investors alike have used the current tax write-offs allowed with negative gearing, which means a number of investors have earned positive cash flow from their residential real estate.

Potential Legislative Change to Rock the Boat

Legislative change to the way negative gearing tax benefits work may result in a complete revamp that rocks the current investing game. In their new policy, Labor aims to limit the usage of such benefits to newly constructed housing only. Citing a study conducted by the National Centre for Social and Economic Modelling (NATSEM), Labor argues that it’s the wealthiest 20 percent of Australians who benefit from the negative gearing subsidies, and that the subsidies put too much emphasis on purchasing existing properties.

Should Labor win their proposal, negative gearing will only be allowed for investments made prior to 1 July 2017 and on investments in newly constructed properties going forward.

What Labor Hopes to Achieve with Negative Gearing Changes

Labor’s biggest concern is housing affordability. It is their hope that emphasising investments in newly constructed homes will stimulate the supply side of housing, causing additional properties to be built.

We can understand this emphasis as young families and new investors have been priced out of the market, especially in cities such as Sydney and Melbourne, due to increased property values. There is also concern about a housing supply shortage as Australian Bureau of Statistics data revealed a fall from December 2014 to December 2015 in total dwelling units approved.

With a larger supply of housing, the market will open up to those with less capital and with increased investment in new builds, the construction industry may keep up with housing demands by getting the boost it needs.

Real Estate Experts Disagree with Changes

Despite Labor’s hopeful expectations, many real estate experts disagree with the changes. The Real Estate Institute of Australia (REIA), argues that investors already make up for 27 percent of new home loans and that this amount has remained consistent for 30 years. They believe removing benefits for investors who are already doing what Labor would like them to do (investing in new builds) is counterproductive and doesn’t make sense.

What are your thoughts? Will changes to negative gearing boost supply for new buyers or burden existing investors?

If you have questions about property investment or buying or selling a home, contact us to speak to a qualified real estate agent. We’d be happy to offer advice.

You can also check out our blog for more helpful tips and information.

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