Real Estate MT: Prices, Capital Gains Tax (CGT), Negative Gearing, Foreign Investment, 'Bubbles'...

[DivideandMultiply]

I would suggest that this is quite the understatement.

Real estate values dip in Australia and our entire financial system collapses.

Yes. Our entire financial system collapses.

Quick pain, or the slow strangle followed by a brutal end.

Banks in Australia are choking the supply of capital to small and medium businesses because of how lucrative the housing market remains.

Government policy continues to make the housing market such a low risk, high return market, surprisingly even more so post GFC (market consolidation, government backing and aversion to allowing foreign competition), that liquidity made available for commercial loans is beyond scarce. I think more than anything, this has stifled the diversification of the Australian economy, is holding back innovation and is driving foreign ownership. Businesses just can't survive without the flow of capital foreign buyouts bring.

 

[DivideandMultiply]

Well it seems that one of Australia's bank chiefs has plenty of confidence in the top end of the RE market.

http://theage.domain.com.au/real-es...-victorian-coastal-estate-20140306-349fh.html

It seems that the only sector making record profits is the banking sector. Funny that.

The GFC was the best thing that ever happened to Australian banks. The shenanigans CBA was allowed to get away with were mind blowing.

Couple that with the government guarantees making it easy for them to buyup whatever competition wasn't crushed and you have one massive consolidation of the retail banking sector. Bad news for Australian consumers in the long run, just as it has been bad news for business.

 

[Smiling Buddha]

I see these articles on news.com sites and wonder.

Springfield Lakes resident Hannah Trotman said the suburb had been the ideal place to build her first home.

“We were attracted to the region because it was quite affordable to not only build our own home but build the home we really wanted,” she said.

“The location was also a big factor because you are driving distance to the city with plenty of facilities like schools and hospitals nearby.

“This region is just perfect for anyone chasing affordability and value for money.”

http://www.couriermail.com.au/reale...dable-properties/story-fnihpu6h-1226879296447

That's 30km from the CBD. Half an hour if there is nobody else on the road. Closer to triple in peak hour.

$400,000 and upwards.

The amusing part, if there is comic relief to be had amongst the sadness, is the names of these 'affordable' suburbs: Springfield Lakes, North Lakes, Forest Lake. Give a suburb a name with 'Lake' in it and the great unwashed just can't help themselves.

 

[Upgrayedd]

Would settle for 400k for a two bedroom house around my current living area TBO :/

 

[carloss]

I think this highlights the Governments real interest in housing.

http://www.renewalsa.sa.gov.au/Late...us-package-to-deliver-affordable-housing.aspx

The State Government has announced an Affordable Housing Stimulus Program to deliver about 175 homes and support more than 500 jobs over the next 18 months. The 2013-14 State Budget will provide $88.7 million funding to support the program, which will provide a critical boost to the housing construction industry in South Australia.

Premier and Treasurer Jay Weatherill said the construction industry had been under significant pressure and the new raft of measures would support jobs in construction and provide access to affordable housing.

“We want to support the builders, tradespeople and workers in the housing construction industry who have been doing it tough in recent times,” Mr Weatherill said. “We know that many South Australians are struggling with cost of living pressures – and housing is the single biggest expense in a household budget.

 

[Scallop Industry Thug]

Im 30, girlfriend is 24. Combined income is about 105k. No kids.

Buying a house not even on the radar.

Currently happy enough renting and having that little more to spend on other things.

I see a few couples my age scratching and clawing to pay off a mortgage and yeah nah.

 

[Patrick Bullet]

It has been my experience that there are lots of people out there who make predictions about the future. For every person out there making a positive prediction there is someone out there making a negative one. Every person who makes a prediction seems to be able to build a compelling argument for their position. Fast forward a few years, and these same people are making the same predictions, and seem undeterred, whether they were right or wrong those few years previous.

When something rather major happens, like the GFC, we like to look back and try to find all the people who 'predicted' the event. We then dress them up like gurus or prophets (e.g. Peter Schiff). The trouble with this is that there are so many predictions out there that no matter what happens, someone out there will have 'predicted' what happened. We conveniently ignore the fact that the 'guru' had made countless other predictions in the past which proved to be wrong, and that their future predictions also turned out to be wrong. In the end, the fact is nobody has a bloody clue what's going to happen. Nobody.

But....plenty of people have theories, and many of these are very well thought-out. It seems to be one of our deep psychological needs to search for certainty where there is none, and I suspect we just end up gravitating towards the predictions that are consistent with our world views. If you're an optimist, you'll be inclined to believe the positive predictions. If you're a pessimist, you'll favour the pessimistic predictions.

The OP seems more pessimistic than most. I really enjoyed reading his/her posts (I mean this genuinely not sarcastically - I too am participating in the futile search for certainty!). They reminded me of a really super intelligent friend of mine (IQ >150), who when we were teenagers was predicting World War 3 stemming from a worldwide oil shortage. That never happened, but now he's predicting a global economic meltdown with a 40 year recovery (which he has been predicting since 2007, but is yet to happen to the scale he has been talking about).

Anyway, if anyone's interested in this type of phenomenon check out the book Future Babble by Dan Gardner or the work of Phillip Tetlock (Google him). You'll quickly realise that most pundits genuinely have no clue about the future (just like the rest of us). Many of them are making a killing from sprouting utter nonsense!

 

[ClokesShankedIt]

I see these articles on news.com sites and wonder.

$400,000 and upwards

Might as well caption that picture: Some men will do anything for pussy

$400,000 and upwards for a river-pig and an ugly house in the middle of nowhere. Gen Y has it good, no doubt about it.

There are more bars on those windows than a Johannesburg mansion. Springfield Lakes must be a delightful place. On that note have a trawl through his bloke's articles regarding an American sub-prime town called Victorville -- http://exiledonline.com/?s=Yasha Levine . Far-flung shitholes like Springfield Lakes will turn out largely the same way once the economy hits the skids.

 

[crackerjack4X4]

Might as well caption that picture: Some men will do anything for pussy

$400,000 and upwards for a river-pig and an ugly house in the middle of nowhere. Gen Y has it good, no doubt about it.

There are more bars on those windows than a Johannesburg mansion. Springfield Lakes must be a delightful place. On that note have a trawl through his bloke's articles regarding an American sub-prime town called Victorville -- http://exiledonline.com/?s=Yasha Levine . Far-flung shitholes like Springfield Lakes will turn out largely the same way once the economy hits the skids.

As long as the ALP aren't in power, the economy will not hits the skids any time soon.

 

[sabre_ac]

Primary home ownership should be seen as a consumption and not an investment. You buy your home to enjoy and provide a lifestyle that you are after, which is why much of the rest of the developed world people live in areas that is walking or decent public transport distance from where they spend most of their time. To view it as your ticket to wealth or the sole means of retirement is a very dangerous game.

That said it isnt a bad wealth acumulator for the financially nieve or immature, however for the majority who have some kind of self restraint, patience and financial education there is better ways of accumulating wealth.

I should point out I am refering to primary residence here, real estate investing is a whole other game.

I dont see property values in Australia tanking anytime soon, especially when you consider national salary averages, government meddling and the enviable Australian lifestyle. However young couples moving to the middle of nowhere to start a family and having to commute to work each day for over an hour each way should stop and consider what they are sacrificing. You can get by with less room or another foreign concept, rent.

 

[TheMase]

As long as the ALP aren't in power, the economy will not hits the skids any time soon.

Load of s**t. You are giving the government of the day too much credit for their influence on the economy. Did Labor cause the GFC? Please...

 

[Slax]

Finally looks like this is actually going to be on the political agenda.

http://www.theage.com.au/business/t...ains-and-negative-gearing-20140715-ztasc.html

For too long politicians have baulked at discussing this in any meaningful way, mainly because they themselves are rorting it. Now that the Murray inquiry has put it squarely back on the agenda maybe Hockey & Abbott might actually look at. Palmer has been blowing holes in the budget faster than Abbott can whinge about them. So far he needs to find a conservative estimate of $7.5b in savings, changing the CGT rules and negative gearing rules would have a massive impact on increasing revenue, which has always been the problem. Australia doesn't overspend and hasn't been doing that for some time. The budget is in the red purely because tax revenue as a percentage of GDP has been falling and politicians are to spinless to do anything about it.

Reduces the amount that can be claimed through negative gearing and the CGT rates would mean a large increase in revenue, more than enough to wipe out the pit created by Palmer in the budget and then some. The other effect would be a drop or stagnation of house prices over the medium term as those investing in property pull out because the tax benefits are no longer there.

If Abbott and Hockey actually did this and pushed it through the benefit to the economy as a whole would be massive to the extent that it would conterbalance all the f**k ups they've made so far. The real question though, is Abbott willing to bring about a tax change that will have a far greater impact on Liberal voters than Labor voters? Unfortunately I think not, but I'd be more than happy to be proven wrong.

 

[carloss]

Australia doesn't overspend and hasn't been doing that for some time.

http://www.michaelsmithnews.com/201...federal-governments-income-and-spending-.html

Sending has doubled since 2002/3 - but revenue hasn't.

 

[Slax]

http://www.michaelsmithnews.com/201...federal-governments-income-and-spending-.html

Sending has doubled since 2002/3 - but revenue hasn't.

Talking purely in physical dollars is a false statistic and the publisher of it knows it too, by itself it means nothing. Let's talk real terms as a % of GDP or else give up.

Spending by Gillard at the end of her term was on a par with 2004-05 in real terms, so the reality is that the government was spending no more than what it was during most of the Howard/Costello years. So either Howard-Costello were wasting money and terrible economic managers or the Liberal Party are lying about over spending.

The real problem is that since the GFC revenue has been smashed, bottoming out at level not seen since the early 90s recession. The big difference though between the two periods is that the economy is nowhere near as bad as it was 20 years ago. This means that the problem lies in the tax system and the extravegant concessions granted by Howard/Costello during their time in power. The best way to secure our economic future as a country without creating a society where we have a proper poor class is to increase revenue

 

[carloss]

ABC fact check
Does Australia have a revenue problem, as ACOSS chief executive Cassandra Goldie claims?
http://www.abc.net.au/news/2014-05-08/does-australia-have-a-revenue-problem/5420474

 

[Maggie5]

ABC fact check
Does Australia have a revenue problem, as ACOSS chief executive Cassandra Goldie claims?
http://www.abc.net.au/news/2014-05-08/does-australia-have-a-revenue-problem/5420474

Arguable was the verdict. However also stated could target revenue or both revenue and spending. It seems to me government has decided to target spending mainly.

 

[Empire_Persian]

Finally looks like this is actually going to be on the political agenda.

http://www.theage.com.au/business/t...ains-and-negative-gearing-20140715-ztasc.html

For too long politicians have baulked at discussing this in any meaningful way, mainly because they themselves are rorting it. Now that the Murray inquiry has put it squarely back on the agenda maybe Hockey & Abbott might actually look at. Palmer has been blowing holes in the budget faster than Abbott can whinge about them. So far he needs to find a conservative estimate of $7.5b in savings, changing the CGT rules and negative gearing rules would have a massive impact on increasing revenue, which has always been the problem. Australia doesn't overspend and hasn't been doing that for some time. The budget is in the red purely because tax revenue as a percentage of GDP has been falling and politicians are to spinless to do anything about it.

Reduces the amount that can be claimed through negative gearing and the CGT rates would mean a large increase in revenue, more than enough to wipe out the pit created by Palmer in the budget and then some. The other effect would be a drop or stagnation of house prices over the medium term as those investing in property pull out because the tax benefits are no longer there.

If Abbott and Hockey actually did this and pushed it through the benefit to the economy as a whole would be massive to the extent that it would conterbalance all the f**k ups they've made so far. The real question though, is Abbott willing to bring about a tax change that will have a far greater impact on Liberal voters than Labor voters? Unfortunately I think not, but I'd be more than happy to be proven wrong.

I agree that the federal and state governments have a revenue problem that can only be resolved through tax reform.

I also agree there is a good case for reducing or abolishing negative gearing and other concessions for property investors.

However there is huge risks associated with this. The main risk being that any such move could substantially impact property prices which would cause problems for millions of Australian's that have equity tied up in residential property.

I think Abbott and Hockey would rather give up a few billion dollars than risk being the cause of a epic property crash.

 

[Power Raid]

I agree that the federal and state governments have a revenue problem that can only be resolved through tax reform.

I also agree there is a good case for reducing or abolishing negative gearing and other concessions for property investors.

However there is huge risks associated with this. The main risk being that any such move could substantially impact property prices which would cause problems for millions of Australian's that have equity tied up in residential property.

I think Abbott and Hockey would rather give up a few billion dollars than risk being the cause of a epic property crash.

right on both accounts

the easiest way to achieve this without the disaster would be to increase property taxes over a 20 year period to the equivalent of $10k pa for an average household

 

[Slax]

I agree that the federal and state governments have a revenue problem that can only be resolved through tax reform.

I also agree there is a good case for reducing or abolishing negative gearing and other concessions for property investors.

However there is huge risks associated with this. The main risk being that any such move could substantially impact property prices which would cause problems for millions of Australian's that have equity tied up in residential property.

I think Abbott and Hockey would rather give up a few billion dollars than risk being the cause of a epic property crash.

I think that it depends on how you do it. Reform is required but it depends on how far you go that will impact the market.

Abolishing negative completely would have a massive impact, but reducing the amount you can claim from the current 100% to maybe 50% wouldn't have that big an impact. Some correction would be felt, if you combined with a change to CGT where an increase of the amount to be included in taxable income went up from 50% to say 65%, this would have a bigger impact than negative gearing changes.

The other side of the whole arguement is that housing prices are actually having a negative impact on the economy. People are having to tie up so much of their disposable income in paying mortgages that it has created a situation where descretionary spending is serverley impact effecting small business. Small business is the number 1 employer in this country by so far it's not funny, so by freeing up disposable income it will help them and thus help employment. The correct may mean that some have negative mortgages and that is unfortunate, but any asset can go down in value as well as up, that is a risk any investor takes.

Assuming then that investor then start to shy away from residental property as an investment they will turn to other options, the money won't be lost as people will always look for a return on their capital, its just a question of how you get that return. It could have a much greater impact by getting people to look at various business ventures or even opening the window for the government to look at the way it conducts public-private partnership, so instead of turning to the corporate market for funds, it opens the window to small investors.

Changes will have a short-term negative impact as people scare monger about prices and the real estate bodies scream murder at the government, but this will clear and people will continue on. The medium to long term impact will only be felt by those investing in rental properties and I have no real sympathy there.

If we want to resolve the tax revenue problem the government needs to make some very tough decisions, the question is are they willing to? These changes would actually be very hard for the Senate to knock back, it helps out the working class, so tick from Labor & Greens, gives a greater opportunity for young people to own a house and run a small business which would (on the surface of what they stand for) satisfy the cross benches in the Senate. The only other real alternative is an increase in the GST and that would have a far bigger impact across teh whole community if not offset by massive cuts to income tax rates.

 

[DrKrieger]

I think that it depends on how you do it. Reform is required but it depends on how far you go that will impact the market.

Abolishing negative completely would have a massive impact, but reducing the amount you can claim from the current 100% to maybe 50% wouldn't have that big an impact. Some correction would be felt, if you combined with a change to CGT where an increase of the amount to be included in taxable income went up from 50% to say 65%, this would have a bigger impact than negative gearing changes.

The other side of the whole arguement is that housing prices are actually having a negative impact on the economy. People are having to tie up so much of their disposable income in paying mortgages that it has created a situation where descretionary spending is serverley impact effecting small business. Small business is the number 1 employer in this country by so far it's not funny, so by freeing up disposable income it will help them and thus help employment. The correct may mean that some have negative mortgages and that is unfortunate, but any asset can go down in value as well as up, that is a risk any investor takes.

Assuming then that investor then start to shy away from residental property as an investment they will turn to other options, the money won't be lost as people will always look for a return on their capital, its just a question of how you get that return. It could have a much greater impact by getting people to look at various business ventures or even opening the window for the government to look at the way it conducts public-private partnership, so instead of turning to the corporate market for funds, it opens the window to small investors.

Changes will have a short-term negative impact as people scare monger about prices and the real estate bodies scream murder at the government, but this will clear and people will continue on. The medium to long term impact will only be felt by those investing in rental properties and I have no real sympathy there.

If we want to resolve the tax revenue problem the government needs to make some very tough decisions, the question is are they willing to? These changes would actually be very hard for the Senate to knock back, it helps out the working class, so tick from Labor & Greens, gives a greater opportunity for young people to own a house and run a small business which would (on the surface of what they stand for) satisfy the cross benches in the Senate. The only other real alternative is an increase in the GST and that would have a far bigger impact across teh whole community if not offset by massive cuts to income tax rates.

I would probably add that if someone is relying on geared tax deductions to be able to afford another house, realistically they probably can't afford the house.

As a renter I'm probably biased, but if my shares take a dive I can't claim it on tax, I have no way of being compensated for that by the government because that risk is part of investing and as such, is not the government's responsibility.

It might be selfish of me, but I would find it hard to be sympathetic to those whose 2nd, 3rd or 6th house might be worth a little less than it was bought for if there is a change made.

 

[Long Live HFC]

As a renter I'm probably biased, but if my shares take a dive I can't claim it on tax, I have no way of being compensated for that by the government because that risk is part of investing and as such, is not the government's responsibility.

?

If you borrowed (geared) to invest in shares then you’re able to make the same kinds of deductions as someone that did the same with property (primarily the central cost is the interest paid on your loan). How is this any different? Additionally, if you choose to take a capital loss on your shares investment, then of course you get to claim that on tax?

 

[DrKrieger]

?

If you borrowed (geared) to invest in shares then you’re able to make the same kinds of deductions as someone that did the same with property (primarily the central cost is the interest paid on your loan). How is this any different? Additionally, if you choose to take a capital loss on your shares investment, then of course you get to claim that on tax?

Haven't looked much into margin loans, so wasn't aware of the first part. You learn something every day hey!

The second part I did know, so I'm clearly still not properly awake...

 

[Slax]

?

If you borrowed (geared) to invest in shares then you’re able to make the same kinds of deductions as someone that did the same with property (primarily the central cost is the interest paid on your loan). How is this any different? Additionally, if you choose to take a capital loss on your shares investment, then of course you get to claim that on tax?

A lot of people took a massive hit over margin loans on shares during the GFC, it was actually a key factor in Ross Lyon moving to Fremantle as he had lost somewhere in the region of $1m over it and had to sell his house to repay the bank.

Heavy gearing is done by many and advocated (irresponsibly) by a number of the get rich in property investment groups. The truth is that one person who used to front them (a woman but can't remember her name), claimed to of built a property portfolio of $10m through doing it. She ended up bankrupt. Her fall should be widely publicised, the income from the properties were interlink to cover mortgages that were interest only payments, when she put up the rent on a couple of proerties they become vacant for longer than expected, to make matters worse a bad tennant meant money needed to be spent to bring a property back up to rental standard and that property was also off the market. Mortgage payments don't stop if a property is vacant and she fell behind, the loans were with different banks and one bank foreclosed, and it all tumbled like a house of cards.

It is a fact that the banks will foreclose on rental properties much faster than owner occuppiers, as it doesn't involve putting anyone out on the street. Notices are served to real estate agents, tennants are safe because the bank will want the rental income whilst they work through a sale process and if locks are changed it is done so with the help of the tennants who will immediately get copies of the new keys.

 

[Long Live HFC]

A lot of people took a massive hit over margin loans on shares during the GFC, it was actually a key factor in Ross Lyon moving to Fremantle as he had lost somewhere in the region of $1m over it and had to sell his house to repay the bank.

note that i wasn't referring specifically to margin lending, which involves a bank going dollar for dollar on share purchases you make. i was simply referring to borrowing money to purchase assets, in this case shares, and then deducting the interest payments at tax time. "gearing" really just means "borrowing to buy an income-generating asset".

Heavy gearing is done by many and advocated (irresponsibly) by a number of the get rich in property investment groups. The truth is that one person who used to front them (a woman but can't remember her name), claimed to of built a property portfolio of $10m through doing it. She ended up bankrupt. Her fall should be widely publicised, the income from the properties were interlink to cover mortgages that were interest only payments, when she put up the rent on a couple of proerties they become vacant for longer than expected, to make matters worse a bad tennant meant money needed to be spent to bring a property back up to rental standard and that property was also off the market. Mortgage payments don't stop if a property is vacant and she fell behind, the loans were with different banks and one bank foreclosed, and it all tumbled like a house of cards.

It is a fact that the banks will foreclose on rental properties much faster than owner occuppiers, as it doesn't involve putting anyone out on the street. Notices are served to real estate agents, tennants are safe because the bank will want the rental income whilst they work through a sale process and if locks are changed it is done so with the help of the tennants who will immediately get copies of the new keys.

all the more reason to keep negative gearing then?

 

[Slax]

note that i wasn't referring specifically to margin lending, which involves a bank going dollar for dollar on share purchases you make. i was simply referring to borrowing money to purchase assets, in this case shares, and then deducting the interest payments at tax time. "gearing" really just means "borrowing to buy an income-generating asset".



all the more reason to keep negative gearing then?

I was only using Ross Lyon as example of someone who geared his share purcahses through a margin loan as an example.