Negative gearing is a huge part of Australian investment culture, and describes situations where individuals take out loans to invest in properties that do not generate as much income as the cost of the interest and maintenance on the property. The practice is controversial but widespread, and often used as a tax reduction strategy. As a result, Parliament in Australia has debated negative gearing multiple times. — Accrue Real Estate’s Jeff Grochowski has been keeping a close eye on the developments, and has published new insights into the latest state of play for investors.
Grochowski reports that the The Prime Minister, Malcolm Turnbull, in answer to a question from Labor, told the House of Representatives that negative gearing will remain. 35% of property buyers nationwide, and more in Sydney and Melbourne, were using negative gearing to reduce their taxes. As property is the main driver of personal wealth, changing policy of negative gearing could eliminate 35% of the market overnight.
Grochowski goes on to analyse and cut through the media spin attempts by various parties in the coalition and uses historical context to justify why investors have little reason to be concerned, after Labor’s disastrous elimination of negative gearing in the 90s. He points out that scary policy announcements are a part of Labor trying to rehabilitate Shorten's image by getting media coverage for "thought bubbles".
The property expert and licensed real estate agent said yesterday in a media conference, "Negative gearing will remain in some form. It is too important for the economy to be eliminated."
The message that Jeff wanted is one of confidence, with a recommendation that investments made now will not be affected retroactively, “Buyers can look at reducing their tax with an investment property under the current rules before the federal Budget. They can be confident that the Prime Minister will not make changes that will harm the property market. Australia's immigration policy is bringing record numbers of new residents to Melbourne and property investors will be the people who provide their homes. One thing is for sure, if you secure a property for negative gearing purposes today there is comfort in knowing that it’s likely the full benefits of negative gearing will remain in place for those who don’t procrastinate.”
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