<html><body>
With the McKell Institute’s recent Homes for All report calling for the removal of negative gearing to make properties more affordable for first-time buyers and Treasurer Wayne Swan effectively ruling this option out, negative gearing is always on the social agenda.
The best way to balance the concerns that negative gearing inflates prices with the need to support investors is to make negative gearing applicable only to new off-the-plan or newly renovated property investments.
Negative gearing was established to alleviate the tax burden experienced by investors in recognition of the important role they play in providing rental accommodation, and there is no denying that investors are a vital cog in the Australian housing landscape.
However, the vast majority of investment properties that are being financed by investors using a negative gearing strategy are existing dwellings. Hence the practice has very little impact on new supply in a market, where rental vacancies remain extremely tight.
Put simply, investors who buy new off-the-plan properties are having a positive impact on society by creating new rental accommodation, whereas investors using negative gearing to finance the purchase of existing properties are not. Instead they are competing for properties directly with prospective owner-occupiers, but from an unfairly advantageous tax position.
It is important to consider the flow-on effects of new construction and renovation on the broader economy, particular in challenging economic times.
New residential construction contributes significantly to the overall economy, from the obvious beneficiaries like developers, builders and other tradespeople, but also including architects, furniture and appliance wholesalers and retailers, home improvement stores - the list goes on and on.
Hence the need to encourage investor demand for new properties to stimulate construction and to unlock the economic benefits of new development down the supply chain. Making negative gearing applicable only to new or newly renovated developments is one strategy to achieve this.
Of course there is always the question of “how new is new?” That is, up until what point in the development lifecycle should an investor be able to access negative gearing to help finance a property purchase?
A model based on the proviso that an investor must be either contributing to demand for – or supply of – new rental accommodation to access negative gearing is necessary.
The fairest way to ensure a negative gearing strategy is being used only by investors contributing to the supply of rental accommodation is to make the practice accessible from an agreed timeframe following the commencement of the initial lease term, with consideration given to the individual investor’s personal circumstances.
In consideration of the ideal timeframe for an investor to access negative gearing, it generally takes five to six years for an investment property to become neutral in terms of income received versus interest payable. While this is influenced by the rental income, the investor’s marginal tax rate and depreciation allowances, a timeline of this duration seems a logical, fair approach. 
Investors building a property portfolio should ideally be looking to reap the long-term benefits of compounding capital growth by aiming to increase annual rental income and use the fixed expenses and compounding rental growth in the short term to create long term positive gearing.
It should be remembered that all types of income producing properties have substantial taxation benefits, over and above negative gearing, that an investor can claim as tax credits.
Every investor should enlist the services of a quantity surveyor to prepare a depreciation schedule, the cost of which is fully tax deductible, while also ensuring items such as body corporate fees, electricity and gas, insurance, land tax and property agents fees are claimed, to name a few.
Neil Smoli is managing director of the <a href="https://aviategroup.com.au/" target="_blank">Aviate Group.</a>
 
 
 
 
</body></html>

nsmoli-dR5uP4Chwk

Negative gearing should apply to new properties only

<html><body>
Yesterday’s decision by the Reserve Bank to leave interest rates unchanged preserves what is a prime residential investment environment. The anomaly is that most potential investors are not seeing the signs.
Essentially there are four drivers to affordability for investors: income levels, rental yields, house prices and interest rates. And a case can be made that each of these factors is currently biased toward the residential investor.
Wage levels are showing growth, supported by low unemployment levels, which provides security in terms of attracting and retaining tenants. Additionally, rental yields are up, underpinning investor confidence.
Residential prices are currently flat and have even shown declines in some areas, and the stable interest rate environment, which has now remained steady for nearly 12 months, combines to create an ideal investment landscape.
Nevertheless, there seems a degree of reservation among investors, and buyers in general, given broader economic uncertainty. This is understandable but not necessarily advisable.
Investors in residential property can be classified as either ‘foresighters’ or ‘hindsighters’, and the latter often miss the boat. Those waiting for a rumoured decline in interest rates may find that the other drivers of affordability skew to a less favourable position.
The long-term nature of residential investment means the importance investors place on interest rates is sometimes over-emphasised.
While interest rates are obviously a factor investors need to consider, sometimes they are the subject of too much concern, or even paranoia.
Most investors will have a mortgage, but investors who have done their research and taken a measured, discerning approach can observe rate fluctuations without their hearts in their mouths.
However, a successful investment relies on more than just doing the research, it hinges on doing the right research and taking a long term view. A quick glance at recent sale prices and current vacancy rates in a given area opens investors up to numerous risks down the track.
Aviate considers over 100 points when evaluating a residential investment opportunity to mitigate risk and ensure long-term success.
Neil Smoli is managing director of the <a target="_blank" href="https://aviategroup.com.au/">Aviate Group.</a>
</body></html>

Neil Smoli

Editor's Picks

Have something to contribute?

The latest real estate & off the plan properties & news, delivered to your inbox.

Developments

New apartments

New townhouses

News

The latest real estate & off the plan properties & news, delivered to your inbox.

Neil Smoli

Editor's Picks

Receive the latest news stories to your inbox

Have something to contribute?

The latest real estate & off the plan properties & news, delivered to your inbox.

Developments

New apartments

New townhouses

News

The latest real estate & off the plan properties & news, delivered to your inbox.