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The Forum > General Discussion > Welcome back Malcom, not before time i might add.

Welcome back Malcom, not before time i might add.

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Dear rehctub,

$230,000 for a brand new 6 star energy rated 3 bed-roomed house, raised ceilings in the living area and a built in garage. An expected rent of $310 to $330 and within 45 minutes train ride to the Melbourne CBD. The area is the focus of a revitalisation project by the state government where sizable number of the rundown large housing commission blocks were split into 3 titles. The land is markedly cheaper, no stamp duty on the house, and only three building companies chosen out of those who tendered so economies of scale are realised. While you and I might bemoan the lack of a big front yard there is still plenty of space in the rear, although this generation don't seem as into gardens as ours was.

There is a new school, new childcare facilities, a new medical centre and a host of other civic improvements.

Is there a risk this will not work, that the turnaround in the suburb not be realised? Of course. Few investments are risk free. But that is why you do your research. Many don't.

You still haven't answered my question though.

Why should other Australians subsidise those who instead pay inflated prices for existing houses, well above the expected returns, who are banking on the increase in capital gain on the property. You and I have both owned businesses. Would you ever purchase a going concern knowing you would be making a loss over the next 10 years in the hope you would get more than what you paid for it plus inflation? No. Would you expect the government to finance such an investment? No. So why do you make an exception for a housing bubble?

Now I'm willing to see a subsidy to produce a social good. Providing new housing stock and work for our building sector could be argued is a social good. Extending that subsidy for existing purchases is not.

Come on mate, you think a bit about issues and normally take a fairly hardnosed practical approach. Why the seeming blind spot on this one?
Posted by SteeleRedux, Monday, 6 June 2016 11:21:24 AM
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Stel, firstly, the majority of businesses purchased are leasehold, whereas houses are freehold, and there in lies the difference.

Name me a property that was purchased 15 years ago that has not increased in value, especially if purchased diligently as you alert to.

While I on the one had accept part of your argument about sub subsidising older homes, how many older homes are sold then replaced with new ones?
How many will still be sold if PAYG investors can not buy them?

How many first homes will no longer be rented then replaced with new homes, known as upgrading?

The major flaw in the NG policy is the unknown value of the old home once it is no longer new.
Posted by rehctub, Monday, 6 June 2016 5:25:09 PM
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rehctub,

Negative gearing is principally a strategy for reducing taxable income.

That is well known.

If you wish t invest in property and make a profit from the real estate market - then by all means go ahead. You shouldn't expect to ride on the backs of other tax payers who don't wish to do so.

Exactly the same principal for those business people, who bought businesses knowing full well that would be paying penalty rates. They invested knowing that. It's not something that was dropped on them as a surprise.

I'm sick of hearing you whinge about leaners, when simultaneously you pull out all stops to defend the leaning of investors - and then insult our intelligence by telling us it's for the good of housing stock.
Posted by Poirot, Tuesday, 7 June 2016 9:01:38 AM
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Dear rehctub,

Regardless whether something is leasehold or freehold they are both investments. On one of my businesses I was able to get more than 10 times what I had purchased it for 7 years earlier. It took a lot of hard work, and the first year was pretty touch and go, but it was an investment of time and money I was prepared to make. I both manufactured and provided services, employing people within the business and providing work for subcontractors. We made a loss in the first year and that was it.

Those who take purchase existing houses at inflated prices, with returns well under costs just to take a punt on rising house prices, make losses year after year after year. What they expect the rest of us to do is to subsidise those losses and to back their punt. I don't want to any more, particularly as the only people employed are generally real estate agents and conveyancors for a short period.

As I said I am open to subsidising an increase in housing stock and the employment produced because of the social good it provides but not anything else. If an existing old and rundown house is torn down and new dwellings erected in its place I am still okay with providing subsidising as both factors are at play. I'm not so sure about funding the replacement of an older house with a single new one since there has been no increase in overall dwellings though it does at least provide work for the sector.

As to the sale of once new buildings to the next investor I feel if the house is maintained and rents hold firm against repayments then it should be attractive to both an investor and a first time buyer. We shouldn't have to spruik a property by saying 'come and buy my loss making investment because you can deduct those losses on your tax'.

There is a number of issues I have with Labour this election but their approach to negative gearing is not one of them.
Posted by SteeleRedux, Tuesday, 7 June 2016 11:36:56 AM
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Steel, do you honestly think an investor is going to buy a property that has been negatively geared, that can no long attract that deduction for the fun of it. No, they won't.

If a person has to use after tax dollars to invest, why on earth would they choose property? If they were smart, they would pay down their own home loan. If they own their home they would buy a better car, or a boat, or similar, even go on more holidays, or, they could shift their investments into something that can be negatively geared, but without the risks associated with housing as the unknown factor, which not even you can predict, is the price of used housing.

Poirot, are you aware that banks pay tax on that interest that is being claimed by the investor? Besides, few properties remain negatively geared for too long, so they cant keep claiming the loss forever, however the interest is always paid for the term of the loan, which attracts tax.

I have little doubt rents will increase to unaffordable levels, but hey, lets just wait and see because either way I wont be effected as I operate under the protections of trusts.
Posted by rehctub, Tuesday, 7 June 2016 6:01:22 PM
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Dear rehctub,

I think you are making my point for me.

You ask “If a person has to use after tax dollars to invest, why on earth would they choose property?”.

Well for 5% deposit on a property which has a rate of rent return greater than the repayments, as has been available in the revitalisation project, my child will end up with a house at the end of 25 years which will be entirely paid for hopefully without much extra layout. Why wouldn't you do it? A car, boat or holiday are not investments.

If someone wants to go and pay an inflated price for an existing home as an investment I for one am objecting to subsidising it. Why aren't you?

You ask “Steel, do you honestly think an investor is going to buy a property that has been negatively geared, that can no long attract that deduction for the fun of it.”

If they are half way intelligent then of course not. Why would anyone go and buy a divestment. Why should I have to stump up for the greedy ones or the ones who want to churn properties. Bricks and mortar are long term investments, there to be held for multiple decades. Those who want to regularly turn them over can accept the greater risk without handouts from me.

I see far too many people who are signing up to buy existing rental properties without due diligence or any appreciation for the true value just because they have high incomes and want a writeoff. Fine, but they shouldn't expect the rest of us to be out of pocket for it.
Posted by SteeleRedux, Tuesday, 7 June 2016 7:36:46 PM
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