Be prepared to pay 50% more rent if negative gearing goes: Chan & Naylor

If negative gearing is abolished, then renters should be prepared to pay 50% or more extra according to Chan & Naylor.

While it has recently been argued that the government would save $5 billion in the first year by abolishing negative gearing, Chan & Naylor’s Ken Raiss said that wider economic uncertainty and social dislocation would result as investment properties would quickly be re-directed into the hands of commercial landlords who would charge more.

With 96% of public housing provided by private investors, the majoring being ‘mum and dad’ investors, Raiss explains that as a result rental properties are available at varying levels of affordability.

Raiss argues that if the tax effect is taken out, then the 90% stock owned by mum and dad investors with one or two properties (73% an 18% respectively) will be bought up by commercial landlords who will charge more in order to get the higher rental yields that they typically see on their commercial portfolios.

Raiss notes that yields for commercial property are typically 50% above residential property.

 “Like any other public utility, as soon as they enter private and more entrepreneurial hands then prices will go up, and in the case of public housing this could lead to a rental price hike of as much as 50% over time, resulting in the government having to shoulder the weight of providing a much larger percentage of housing for tenants and social dislocation for those unable to receive government housing,” said Raiss.

“Small business owners wouldn’t invest in a new or start up business if they couldn’t claim their losses, so there is no reason why property investment should be any different,” he said.

In fact, his view is that property investors face a significant challenge of buying somewhere with enough growth that it offsets all their costs in the meantime.

“Property is the biggest asset most people will own, and so they need to surround themselves with professionals who can offer advice in making considered and informed decisions, such as buying in the right market and property cycle or choosing a property with the opportunity to raise equity through renovation or improvement, boosting both capital value as well as rental yield,” he said.