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Ben Kingsley Blog post by Ben Kingsley

Negative Gearing to Continue..

With Labor now running the country for the next few years it’s nice to know that they stated at the National Press Club debate, that they will not be touching negative gearing.

Real Estate Institute of Australia (REIA) president David Airey was pleased with this announcement.  “This is fantastic news for renters, affordable housing and real estate investors,” Mr Airey said.

In 1985 the Hawke Government removed negative gearing on property, which saw rents skyrocket. It was documented that rents in Sydney increased by 57.5%, in Perth by 38.2% and in Brisbane by 32% before the government of the day was forced to re-introduce it again in 1987.  At the same time new property construction fell by 13.8%.

Mr Airey noted that negative gearing for the purpose of property investment was necessary as it addressed the supply of rental accommodation, which benefited the overall industry.

 

What is Negative Gearing?

Negative gearing is effectively running the property investment as a loss.  I.e. The rental income does not cover the shortfall of the interest charged plus any repairs, maintenance, depreciation and possible professional fees due in making a property available for rent, hence a loss is created.  This loss is offset against other taxed income that you have generated during that financial year.  Therefore entitling the operator of the investment property to tax refund.

  • Pro:  The primary benefit of negative gearing is around the positive tax benefits it provides to people.
  • Con: Too many people think that investing for a negative gearing I.e. Tax benefit is the reason to invest in any property – WRONG!!

Investing to make a loss is a stupid idea.

Negatively geared properties rely on the capital growth of the asset, therefore asset selection is going to be critical to determine if this has been the best investment option an investor can make at that point in time.

Negative gearing is a benefit that I would class as a ‘fringe benefit’ and not as the primary reason to invest.  And those promoting it as the main reason are spruikers!

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