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Property Investing Q&A - What will happen if negative gearing is no longer a tax deduction? (Transcript)

Recently, Dale Alcock, Managing Director of the Alcock Brown-Neaves (ABN) Group together with Peter Gianoli, General Manager of Investor Assist and ABN Realty, addressed a crowd of keen property investors who raised some hard hitting questions. Here is the second of a series of five questions asked.This one is about about negative gearing.

Transcript: Dale Alcock and Peter Gianoli discuss negative gearing

Peter: Hello this is Peter Gianoli, the General Manager of Investor Assist. Recently, Dale Alcock and myself were asked what will happen if negative gearing is no longer a tax deduction? Here is our answer.

Peter: I suppose my first answer is I dare a politician to actually try to do it. That would be the first…

Dale: A lot of politicians have negative properties.

Peter: Yeah.

Dale: Both sides.

Peter: And I think it’s also important that every time the economy stalls, and by the economy stalling, we’re talking national economy, because this would be a national move. They stimulate the economy by getting housing back up and running. So the first thing you do is reintroduce the first homebuyer grant or the size of the first homebuyer grant. So I think it would be difficult for them to take it away.

Secondly, should they take it away, I would suggest they would grandfather it. Not guaranteed, but I’d suggest they put a grandfather clause in place. Bit like with solar panels. When they took the solar scheme away, if you had the solar scheme today and they took it away tomorrow, you kept your solar scheme, those tomorrow didn't. So I think it would be A I don't like what they take away. But B should they take it away, I think they’d probably put a grandfather clause in place.

But, probably more importantly, number three, is in today's market, in Perth Western Australia, in metropolitan Perth, dealing in mums and dads property, they’re not negatively geared. They’re positively geared at the moment. And yes, when you are at deprecation you start to get them into negative geared territory. But every property in WA at the moment, not every, every mum and dad property that we're advocating, if you get in at $490,000, you're earning $540-$550-ish a week rent. So the amount of reliance upon negative gearing that used to be in place isn't in place quite so much at the moment.

Negative gearing was really popular in Western Australia when it was a 3% return on investment. Rent was lousy and so it was particularly attractive. Now rent is good, and if anything, they’re growing. Yes, they’ve come off a little, but they’re continuing to grow year on year.

Dale: Just another comment on that, too. Whilst you would obviously have an implication around the taxation side of things it may, from an investment point of view, if it did occur, ultimately give a kicker for a period that is positive because the one thing that would happen if it ever came in, investment housing will go through the floor. It will just wipe it for a period, which would actually cause an undersupply, which would drive rents up higher. So you’d really be playing with a balance.

So yeah, it’s interesting. I would think that part of the account of what you’re losing, you’d actually at least in that shorter term, short to medium term, you’d find that it would cause an undersupply of investment. Because that’s the thing that, I think, is lost in this debate, is that who’s then going to front up to drive and construct investment housing?

One of the things, just while we are talking structural change too, you might have heard Nick Xenophon, the independent politician, senator from South Australia is proposing to put up a bill to allow Australians access to their superannuation for the first time with conditions. And that’s something we've been advocating for some time because for young people that are now putting aside, by law, a lot of money into their super, that they aspire to get onto the property ownership cycle. You’ve got their money building up which is quite intangible. You know, they don’t see themselves retiring for many years, and yet they are battling to get into homeownership which ultimately, let’s face it, is a form of superannuation in itself.

And if you have a look at it, just Google Canada and access into superannuation, it’s a really smart scheme there, where there are requirements to pay it back, conditions, all of that sort of thing. But it’s a really smart scheme. So I think it’s about time we looked out more broadly into the world and see how some of these things are being done in other places. And so I think he’s a really smart cookie. So I think the fact that he’s not aligned to a party and he’s smart, you know, you listen to guys like that.

4 min 46 seconds

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