79% Of Investors Would Dump Their Property

The Queensland Real Estate Institute has surveyed their 14,000 members and landlord clients. The findings were quite overwhelmingly against any changes to negative gearing. The survey found that 79% of property investors would abandon investing in property as a strategy.

Matthew Cranston from the Australian Financial Review interviewed REIQ Chairman Rob Honeycombe and he said "We now know for a fact that 79 per cent of respondents will get out of property and find an alternative investment strategy that works more effectively and yields a better return," Mr Honeycombe said.

"That will have a crippling effect on house values and on the rental market, where the private rental market plays such a critical role in keeping rents affordable," he said.

Mr Honeycombe said that would represent around $130 billion in value, deleted instantly based on CoreLogic estimates that residential real estate in Australia is valued at about $6 trillion.

"The impact of this on the broader economy would be far-reaching."

Let’s keep things in perspective also. It is an industry body commissioning an industry survey to its members. However, we need to be asking a lot more questions about the impact any changes to negative gearing could have on the housing market overall.

There seems to be a lot of factors in this argument that haven’t been raised in terms of the impact negative gearing has on the federal budget. I highlighted these points a few weeks ago;

  1. With an aging population coming out of the horrors of the GFC, of course we saw an increase in the number of property investors. It was always going to happen.
  2. The latest Australian Taxation Office (ATO) statistics show that in 2013-14 the impact negative gearing had on the federal budget has actually more than halved from $7.9 billion to just $3.7 billion.
  3. Let’s not forget that during this period, the cash rate was at 2.75%. It is now at 2%.
  4. As more numbers come out of the ATO for 2014-15 and 2015-16, we will see further declines to net rental losses. This will mean negative gearing will have less of an impact on the federal budget.
  5. The recent statistics from the ATO also demonstrate that 60% of taxpayers claiming net rental losses have a taxable income of less than $80,000.
  6. Only 8% of property investors are paying tax at the highest marginal rate.
  7. The total capital gains reported by taxpayers increased by 37% to $34.4 billion

The negative gearing focus seems to be around Sydney and Melbourne only. Negative gearing has been around since 1936. Negative gearing for property had a break for a couple of years between 1985 – 1987 when the Hawke/Keating government abolished negative gearing however, were forced to reintroduce the act due to rental increases in particular in Sydney and Perth.

If negatively geared properties are making such a negative impact on the market, why do we not see the same capital gains across all states?

If a federal government were to abolish negative gearing, would we see property investors push rents up to say 7% yield to compensate for their shortfalls?

Will the federal government pay for additional social housing or will they pass on the expense to state governments? Either way, the expense is passed on to the tax payers.

We can only assume that the ATO figures are correct when they show a negative gearing loss of $3.7 billion for the 2013-14 financial year. If the government were able to deliver properties at say $250,000 per property for social housing, the $3.7 billion would only cover 1,480 properties nationally.