Busting the REIA’s negative gearing lies once and for all

ScreenHunter_43 Jan. 24 08.38

By Leith van Onselen

Repeat a lie often enough and it becomes true. This appears to be the approach taken by the Real Estate Institute of Australia (REIA), which has issued yet another warning that the removal of negative gearing would adversely harm Australia’s renters by creating rental shortages and driving-up rents. From Residential Property Manager:

REIA chief executive Amanda Lynch said the federal Treasury is again pushing for the removal of negative gearing and the rumour is that modelling will be done on retaining it for new housing only.

“This is a serious threat not only for our profession and geared investors but potentially for all property owners,” she said.

“Negative gearing increases investment supply with almost 1.9 million of Australians investing in the residential property market.

“The arrangement keeps rents lower than they otherwise would be,” she added.

The Hawke government abolished negative gearing for property in 1985, only to have it reinstated in 1987.

According to the REIA, during that period rents increased by 57.5 per cent in Sydney, by 38.2 per cent in Perth and by 32.0 per cent in Brisbane, highlighting the importance of upholding the arrangement…

“In the current tight rental market expectations are for outcomes similar to the mid-1980s,” Ms Lynch said

“The removal of negative gearing would increase demand for social housing, an area that governments have been struggling to address.”

Once again, let’s use something called “evidence” to debunk the REIA’s claims that the quarantining of negative gearing between 1985 and 1987 pushed-up rents.

First, consider the below chart plotting the Australian Bureau of Statistics (ABS) rental series from 1972 in real (inflation-adjusted) terms, with the period where negative gearing losses were quarantined (i.e between June 1985 and September 1987) shown in red.

ScreenHunter_3791 Aug. 15 11.02

As you can see, there was nothing spectacular about this period, with periods of higher rental growth recorded both prior and subsequently.

Now let’s examine each capital city housing market to see whether the quarantining of negative gearing had any discernible impact on rents.

ScreenHunter_3798 Aug. 15 11.12

Now Melbourne:

ScreenHunter_3799 Aug. 15 11.12


ScreenHunter_3800 Aug. 15 11.12


ScreenHunter_3802 Aug. 15 11.14


ScreenHunter_3801 Aug. 15 11.12


ScreenHunter_3803 Aug. 15 11.15


ScreenHunter_3804 Aug. 15 11.15


ScreenHunter_3805 Aug. 15 11.16

Again, anyone that claims that the quarantining of negative gearing between 1985 and 1987 pushed-up rents either doesn’t know what they are talking about, or is lying. The above charts illustrate, without a shadow of a doubt, that the Hawke Government’s decision to quarantine negative gearing had no discernible impact on rental growth, period.

The REIA’s tacit assertion that negative gearing assists in the provision of rental accommodation is also highly spurious. An examination of of the RBA statistics shows that the overwhelming majority of investors – over 90% – invest in existing dwellings rather than construction, and that the proportion of investors constructing dwellings has fallen spectacularly since negative gearing was re-introduced in September 1987 (see next chart).

ScreenHunter_3329 Jul. 16 11.35

Moreover, the amount of investor funds going into new construction has barely shifted in 25 years:

ScreenHunter_3330 Jul. 16 11.36

Because investors primarily purchase existing dwellings, negative gearing in its current form simply substitutes homes for sale into homes for let. As such, negative gearing has done little to boost the overall supply of housing or improve rental supply or rental affordability.

In the event that negative gearing was quarantined so that losses could no longer be claimed against wage or salary income (as occurred between 1985 and 1987) and a proportion of investment properties were sold, who does the REIA think they would sell to? That’s right, renters (or other investors). In turn, those renters would be turned into owner-occupiers, thereby reducing the demand for rental properties, leaving the rental supply-demand balance unchanged.

Let’s also not forget that Australia is one of only a few nations that allow investors to deduct property losses against unrelated income. And yet we have one of the most unaffordable housing markets in the world and chronic supply problems (despite a massive land mass). What does this tell you about the efficacy of retaining negative gearing?

The evidence shows that negative gearing does little to boost supply, yet the additional demand from tax subsidised investors places upward pressure on home prices, locking-out first time buyers. This might help to explain why most other nations – many with more affordable rental accommodation than Australia – do not allow negative gearing.

Negative gearing also costs the government billions in lost tax revenue, which could be used to fund schools, hospitals, housing-related infrastructure, or any number of other worthwhile endeavours. It is pure and simple rent-seeking.

[email protected]



  1. Nick the GreekMEMBER

    you should send a copy of this post to the REIA and whomever published her nonsense. Great smack down.

    • Count me in too – I’ve long thought that kickstart may be a way to fund a progressive counter communication.

      That or host some lunches to the well connected in North Sydney?

    • Thanks for the feedback. I was actually thinking about doing something like this the other day to push back against Xenophon’s introduction of Super for housing deposits… might have to put some more thought into how it would best work. My thinking was a half to full page advert with some space on the design for the names of individuals or businesses who support with a minimum contribution. It’s not cheap though, some of the pricing I found suggested $20k+ a full page.

    • I’d be in that for sure; question is with the vested interests at play which newspapers would print it?

    • @BB

      A simple web site might be a better long term solution. With smaller adds in papers etc pointing to it periodically. There is a lot of content on MB for example that is not easily accessible and the narrative not laid out.

      The regular readers know it, but for new readers, it is difficult to scroll through.

      • Agree ff. It would take some planning to narrow down the information presented here to bite size chunks with supporting charts on a page that is engaging for the casual reader. Something that can be skimmed through in less than a minute or two at most and is interesting enough to share via social media. My thoughts are:

        1. Identify the problem (high land prices)

        2. What is government doing to fix it (i.e. nothing & highlight where they’ve gone (or plan to go) wrong, e.g. Super deposit, FHOB)

        3. What can we do to fix it

        4. How can the reader help

        I will put together something and discuss with Leith in near future, see what he thinks.

      • Bubblepedia kinda used to serve this purpose but was badly presented IMHO.

        Quick google search reveals the morons on the aus property sites celebrating its demise.

        But yeah one or two pages with links into deeper material for points raised.

        Also blog entries or twitter type feeds highlighting new stuff (e.g MB or others)

      • I’ll contribute $100 if it’s a web page. Wouldn’t trust the newspapers not to smother the page and adjoining pages with contrary lies and adverts.

    • Good luck trying to get advertising space on any major daily newspaper. I doubt the Sydney Morning Domain will take your money.

  2. The most shocking thing to me is that there is anyone anywhere in government even considering the idea.
    Hopefully its going to go somewhere and get done, but given that this current govt seems to be getting hit from all sides, having wasted all their political capital on crap i have doubts they have the fortitude to go up against such a huge vested interest lobby.
    Given that the worst affected will be baby boomers that they rely on for their votes (and lets not ignore how deeply these political leeches of all persuasions, have fed at the “rort trough” of NG, yeah Krudd im looking at you !!!) , i seriously cannot imagine this will play out the correct way.

    Also given that RIEWA will leap into action on the slightest rumor regarding this sacred cow (moo), we cant really know for sure Treasury is seriosuly considering it or if RIEWA is just jumping at shadows.

    ** though i have to say looking at the graph Perth took an almighty leap at the time.

    • The level of IP holdings in Treasury will influence the action/inaction on this, just like the pollies. Prove me wrong.

    • If all the young people – who have and are being pushed out of the main cities – start flooding the outer and rural electorates, perhaps we can have an impact on policy?

      Seems like drastic moves to exercise our democratic rights. But hey, if the boomers don’t loosen their grips on our throats, we have to start fighting back somehow

      • You’ll create a catastrophe.

        There are not enough jobs in the country.

        So, either:
        1. Employers will agree re: telecommuting (oh wait, we aren’t getting an awesome NBN anymore, plus employers can’t come to grips with it, plus many jobs can’t be done remotely), or
        2. Govt legislate/incentivise decentralisation
        3. Do it anyway and force wages down/put massive load on welfare.

    • Hockey’s plan is to negative gear his 4 investment properties and leave them to his kids. So, he is fully incentivised to push up house prices.

      Xenophon is doing the same but with 8 investment properties.

      They’re thinking about the kids, their own that is.

  3. “Amanda Lynch said the federal Treasury is again pushing for the removal of negative gearing and the rumour is that modelling will be done on retaining it for new housing only”

    Is this true?

    Can we get confirmation from Treasury?

    3 months of failed budget savings measures and no mention of NG from Joe.
    Is it on the table or not?

    What is the position of Lab/Greens/cross bench senators?

    sheltie’s work getting a response from the MBA on NG was admirable and it shows the level of corruption in these peak bodies. The “..trickle down benefits..” statement from the MBA was astounding and straight off the REIA songsheet.

    • Strange Economics

      Joe Hockey from the Sydney Hockey Real Estate family? He’d be drummed out of family get togethers if this removed the extra 50 to 100k on apartment prices subsidised by the govt.
      And what could they spend the 6 billion saved from higher income tax avoiders – majority of negative gearing goes to the top tax bracket.
      eg Remove the deficit with one move?

      • property is toast unless the govt gets their (AAA) finances in order so perhaps this is the lesser of two evils.

        That Treasury are modelling it means its reasonably serious. Depending on what sort of crap they’re putting into the models, it might just make sense. Then they’ll take a few more months to work out how to spin it.

        Best to issue some sort of update first saying how shit the budget is looking, then come out and say they’re not getting rid of NG, they’re quarantining for existing houses and its still on for new housing.

        The speculators would bail, but new housing (and growth) would rec a boost.

        These dickheads could fix things in a heart beat by abolishing all the rubbish taxes and putting in a land tax. It would end housing speculation immediately and after a short painful adjustment (as capital flows back to more productive enterprise) we’d be charging.

        Unfortunately it wont happen…but how easy is it FFS?

      • @Greg. All the points you hit are spot on, which makes me think the whole Senate Inquiry into Housing Affordability is a sham. There is no intention to make it more affordable. Quite the opposite: the intention is to keep house prices elevated.

  4. Same old flimsy, moth-eaten, fungus covered, unfactual argument from the vested interests.
    Perhaps they have seen the writing on the wall of what happened to FHB grants.
    It used to be the case that all States gave grants for both new and existing homes. I just check the First Home Owner Scheme page http://www.firsthome.gov.au/ and for Vic, NSW & Qld it is now only new homes eligible for grants.
    Good idea. Channel lending into new build only.
    Good for builders, developers and economy in general.

  5. Stormy WatersMEMBER

    This is not just a dodgy recasting of causes in the data…they are saying rents rose more on the removal of negative gearing than they have ever risen at any point in history of the ABS data. And not just a little more. They say Sydney rose 57% and the ABS data says Sydney rents have never risen more than 9% is any year. That’s a factor of 6 times more as well as shocking mis-attribution within the data period.

    At what point can these guys be pursued for fraud or obtaining financial advantage through deception?

    • SW: “At what point can these guys be pursued for fraud or obtaining financial advantage through deception?”
      How about at the point there is a Royal Commission into the RE industry.
      Sue them for all they are worth.

    • Stormy WatersMEMBER

      Royal Commissions are just an expensive way to avoid change in many cases.

      I’m thinking more like a litigation funder for Australia’s biggest ever class action.

  6. Boys,
    NG is a horrible policy, but there is no chance in hell they will repeal it.

    This governments popularity is in the pits and you think they are going to repeal NG which is used by some 1.4million Aussies!

    I appreciate the various proponents of NG are consistently peddling the lies, but jeez i recon MB does a story on debunking NG once a month, lets move on.

    • No Denis, let’s not move on.

      This is very bad public policy and needs reform. The way forward is quite clear: grandfather existing and limit future NG to new construction. No one gets hurt. Joe can sell this as investors building Australia. And the spruikers can continue to pretend depreciation is money for jam.

    • “…but jeez i recon MB does a story on debunking NG once a month, lets move on.”

      I’ll move on when they stop publishing lies. Until then, I will debunk them each and every time. I make no apology for this. You don’t have to read it.

    • lets move on

      There’s an information war going on out there so it’s important to promote a more informed stance among voters or we’ll never get a government that will deal with this issue.

    • So more than 90% of the population don’t negatively gear. I don’t believe this is about votes at all.

      Vested interests, nothing more.

      • For people who don’t have an investment property the repeal of negative gearing is largely meaningless.

        For people who do have an investment property the repeal of negative gearing is a big deal and will change a lot of votes.

      • @Lorax the quarantining of NG to new build only would make existing dwellings less attractive to “investors”, reducing price and competition for them. I believe this is a vote winner to a growing demographic.

      • Its a vote winner in the MB demographic (which is very small), but for most people its a non-issue. I dare say, even non-property investors probably like the idea of getting in on the caper one day as well.

        Of course, repealing NG is very open to a scare campaign that it will crash house prices, which will scare off a percentage of the population.

        Not saying I wouldn’t love to see it go, but after the carbon tax fiasco, I’m wondering how it could be sold politically.

      • That as my point Andy. It’s not a vote winner if it reduces the value of the overall housing stock. It might only directly affect the cap gains sniffing speculators, but take their incentive away and it reduces the value for everyone who owns land.

        There’s an increasing and vocal bunch who don’t own, but right now the govt sees their constituency as the landowners.

        Never been any different really.

        Still, if they model that it won’t be a major hit to house prices (didn’t some bank say NG accounted for about 9% cap appreciation?) and that it will have a major long term impact on the budget…it could be a goer.

        Also, government’s are brilliant at picking the top. The resources tax being a case in point. If they DO make changes to NG, that’s a ding ding ding moment for land prices.

      • Fair points guys @Lorax and @Greg.

        The scare campaign would probably be quite “successful” – ignoring facts like no change in relative RE wealth if prices fell, etc (and that’s a big if IMO). Who knows what the other consequences may be? For example, new builds become more attractive and fetch higher prices.

        What needs to happen is for a reasonably swift removal of this abhorrent distortion (3-5 years stepped as mentioned elsewhere) and let the market take care of the rest.

    • It’s the media’s job to constantly discuss issues to inform the public, which helps ensure our Government remains accountable. A well functioning media is a vital piece of “democracy”.

      If MB ‘moved on’, they would be no better than MSM.

      The comment: “…but jeez i recon MB does a story on debunking NG once a month, lets move on.”, shows how far Australia has slipped in regard to the media doing its rightful job.

      2 week (max) news cycle on any story, no matter how important the issue, has become the norm. If you want that, go join rupert over at news.com.

    • Well doesn’t that simply mean 22 Million Aussies who are not negatively geared will realise they and their kids cannot afford the average home?

      Building wealth on an unsustainable growth in property prices is a short sighted recipe for disaster affecting the personal portfolio of property investors.

      What do you think the Millennials and Gen Ys are going to do when their voting block increases? They are going to say: Fuck these selfish Baby Boomers and their retirement nest eggs.

      • Well they had better get the stick out for a good portion of GenY and just about all GenX on account they are all up to their necks in it now and not only that X+Y = THE BIG BLOCK VOTING DEMOGRAPHIC. Bboomer nowhere near as big.

        Common sense says to kill it now, ditto cap gains discount on everything and that other upper middle class welfare scam involving super.
        These issues are not generation specific, more financial class specific and that is almost inherited these days in one way or another

    • I think the Oh S&^% moment will hit our beloved Politbureau squarely in the face when the cost to ATO revenue from the ballooning property investment takes the $5b cost in 2007/8 out to $15b in 2004/5

      A policy with an uncapped cost to the taxpayer which experiences exponential growth is going to box our leaders in between a rock and a hard place.

      They will be forced to act IMHO.

  7. Good time to spread the message guys, on the tax lurk that is Negative Gearing.

    “March Australia” ‘The people united for better government’ have planned a Rally and March on Sunday August 31 @1pm, State Library of Victoria. March to Parliament.
    We are planning an attack on negative gearing, property investors, (including politicians), Housing Affordability, Homelessness, etc.
    We will be making a number of placards to carry.
    If any MB members or readers are interested in joining us, sharing ideas on placard wording etc., or willing to carry a placard, please send email to address below.

    [email protected]


      • Yeah, like marching with the greenies, hippies, bleeding hearts and do gooders will make a difference. It’ll just be the usual rent-a-crowd with long hair, beards and rainbow flags. Mainstream Australia just switches off when they see that stuff.

    • Placard suggestions


      “NG for new builds only”

      “Wake-up FIRB”

      “FIRB approval for new builds only”

      “The FIRB sold my house to China”

  8. We cant remove neg gearing overnight, but it should be unwound over a many year period. Otherwise a dump load of property will be locked up waiting for sale. And it will push vacancy rates down.

    Its a great notion to say renters will become buyers but inbetween then and now we don’t want to cause a huge shit storm. Slowly unwind

    Possibly starting with 80% of losses can be neg geared and remove 20% per year until its diminished.

      • @Lorax a few years ago yes I agree slow melt was ideal – but in the meantime prices have risen 20-30% in my neck of the woods. Slow melt requires reasonable interest rates and RE tax reform – we’ve got neither of these so naturally we got higher prices.

    • So if renters don’t become buyers who do the investors sell to? They’re not going to keep it empty surely?

      Grandfathering existing arrangements is probably the easiest way to go and then only allowing them for a new build is the way to go. NG’ers still get their fix and help increase supply which should surely be the goal in any sensibly minded Government.

      • They could conceivable keep them empty temporarily whilst waiting for the market to turn. It’ll take a little while for the incurable optimism of the property investor to dissipate.

        Also, many landlords believe that removing their tenants is a useful step toward getting the best price for the property – admittedly thinking that the period of no rent will be short. If they evict their tenant and discover that the property won’t sell, it’s very possible quite a few will freeze in the headlights, and the property will sit vacant until they unfreeze.

    • Quarantine NG on existing properties to protect the renters. Allow NG on new builds. There will be no outcry from the poor. The rich will whinge. Queue: the world’s smallest violin.

      • wrt sympathetic string music, the rich have the advantage of being able to hire their own violinists. Ask Uncle Rupert about that some time.

      • I would not be sad to see Uncle Rupert depart. Thankfully, we have MB to balance the debate somewhat. Moreover, there are 22 Million Aussies who are NOT negatively geared. The Millennials, Gen Ys and some Gen X’s are as easily fooled in these days of modern Internet communication.

    • No, lets not slowly unwind.

      Wrong behavior needs to be corrected. Unearned wealth needs to be clawed back. Those that have harmed society need to be punished

    • migtronixMEMBER

      Eslake is being an idiot if he can’t see shortage of affordable housing is thanks to the proliferation of mega mortgages he pimps

      • “Migtronix”, I guess you’re entitled to call me an idiot if you think what i say is idiotic, although you’d be more credible if you attached your real name to it. However, you’re not entitled to accuse me of ‘pimping’ mortgages, because I don’t. And nor does the organization for which I work (not in Australia, anyway)

      • migtronixMEMBER

        I’ve put my picture and details up plenty and I’m no one for you to worry about.

        Didn’t you work for WBC for decades?

        Edit: fair enough I shouldnt accuse you personally of pimping mortgages I was using my usual colloquial catch all for FIRE types

  9. Have sent dear Amanda an email requesting her to review the REIA position in light of the facts.

    Won’t hold my breath for a reply!

  10. This is gold:

    ““This is a serious threat not only for our profession and geared investors but potentially for all property owners,” she said.
    “The arrangement keeps rents lower than they otherwise would be,” she added.”

    Abolishing NG is a threat to owners investors because NG keeps rents LOWER??? Don’t these investors want to get higher rents??!

    • To be fair: owner investors don’t want higher rents, they want tax free capital gains.

      If new housing supply emerges due to new NG being limited to new property builds only, property investors can’t raise rents. Problem solved.

      Property would stop being speculative vehicles. Real estate agents will stop driving BMs, Mercs and Range Rovers. The uneducated swill that call themselves professionals can go back to earning a normal income, in line with their real educational level.

      • Real estate agents will stop driving BMs, Mercs and Range Rovers.


        In time the Rockies may tumble, Gibraltar may crumble
        They’re only made of clay,
        But realtors will always drive European cars
        Whatever their rate of pay.

      • @StatSailor, yeah if they drove second hand European cars, I can probably live with that. It galls me that people with virtually no education can literally earn millions. It’s an indictment of Australia’s productivity levels and the sense of economic equity in this country. Moreover, the RE industry are an opinionated sector that constantly misleads policy makers and the public about the effects of NG for purely self-interested reasons.

      • Leeme C

        Having an education shouldn’t make a difference to what you can earn. Some of the best wealth creators in history shunned traditional education.

        It’s just that most (not all) RE types are parasites feeding on economic rents, and ‘the system’, policy, whatever, allows them to do it. They’re like the flash traders of wall street. They see a regulatory loophole and dive in for a feast.

        Parasites, unfortunately, are some of the most adaptive creates in nature.

      • @Greg, it’s the general pervasiveness of it I find disturbing. If one or two make it because they are good at what they do, I’m ok with that. But when so many are made wealthy for no good reason – I think there is something wrong with the system. I just don’t think it’s good for Australia or productivity in general. What can a RE agent invent on a good day? That’s right: not much.

      • RE agents have got to be literally the worst thing about capitalism. Them having millions is as offensive as it gets to me.

        At least a banker and most of the other douches in the ponzi have to have a normal amount of skill.

      • @Bluebird. That’s the thing – I don’t actually think we have capitalism anymore. We have creditism: The process of banks selling us debt, creating money out of thin air in the process, which pushes property prices sky high.

        RE agents benefited from that as a side effect and now they think they are smart because they are rich, without having a clue how the process made them rich by accident. And because they don’t understand how they got rich, they are fighting tooth and nail against reforming negative gearing. They are ignorant of the fact that however NG reform turns out, unsustainable debt growth will always turn out badly. The correction can be delayed but it cannot be fixed.

    • How about real estate agents stop getting paid a percentage based commission and get paid a fair fee for service instead, which in an excited market essentially requires a few phone calls and filling out a few forms. Their rate per hour is obscene, and ludicrous even compared to many other highly paid occupations.

      Yet when it comes to the most expensive transaction most people undertake in their lifetime, no one breathes a word of dissent. Not only that, but more and more vendors, and hence purchasers, are paying their own marketing costs, which are also increasing rapidly thanks to the likes of REA, when marketing as an expense should be cheaper than ever.

      An industry populated by largely useless and greedy individuals.

  11. Peter Fraser told me last week that negative gearing is no big deal these days. Considering the billions it would save the government, and the strength of the property market at the moment, I must assume that Peter would be happy to see it repealed?

    • It’s no big deal unless you’re a first homebuyer hoping to buy shelter for your young family.

    • No Lorax it wouldn’t personally worry me at all, and I think that any effect on the market would be short lived.

      To understand that you would need a knowledge of tax accounting. I’m surprised that an ex-businessman like you doesn’t have that.

      Think of your own business. probably a family company – Lorax Pty Ltd. The income and expenses that pertain to that company are quarantined by nature of the entity, yet you will make sure that all tax deductions are eventually offset against income, unless you’re a poor manager. I will assume that you are not a poor manager.

      All players will have to change their behaviour, maybe by holding property longer until it’s positively geared, but all games change over time.

      It’s just not the big deal that Saul and others think it is.

      To make a difference the ATO would have to disallow all interest deductions on all investment property which would take special legislation singling out residential investments, but leaving commercial, retail and industrial property, and farms alone.

      It’s not going to happen is it. Too many issues – are those houses used by accountants solicitors and chiropracters residential or commercial?

      In the near future I will be buying a few resi investments – I’ll buy them within a company I own. Why would I purposely quarantine that income and tax deductions? Because I really don’t care whether I claim all of my deductions this year or carry them forward to next year or the year after. In fact it suits me to defer tax deductions.

      Facts of life Lorax – facts of life….

      • Peter Fraser,

        you want facts of life?

        sounds like you need some knowledge of investing.

        Is it a good investment to buy a business that loses money every month in a market where you will not have the power to innovate to the degree necessary to command the higher price you need to charge to make your investment profitable?

      • Yes cosine I really wish I was as clever as you are, but alas I’m not. What do you suggest I invest in?.

      • Let’s do it then, let’s phase out negative gearing if only to save the government the $5 billion a year NG costs, instead of whacking the poor.

        Oh, and thanks for the lecture.

      • Happy to be of service. It won’t save the government a bean, all deductions get claimed. You know that.

      • funny, some losses are avoided.

        As the price drops, the yield increases. Places where negative gearing doesn’t exist, they price to be yield effective.

        Bizarre, but it seems to work..

      • @PF we have been over this many times. Only a small percentage of genuine investors can sustain year after year if losses in order to claim the deductions once positively geared.

        The majority are speculating and NG gives them the cashflow to do so.

      • @PF Do you think there is a long term future for an economy built on tax games to such a large extent? Is that a future nearly two million property investors should build their long term retirement plans on?

        “Its not what you don’t know that gets you into trouble. It’s what you know for sure that just isn’t so.”
        Mark Twain

        Edit: Incidentally, I accept quarantining NG is only one of a number of steps needed.

      • Peter Fraser

        What should you invest in?

        While I do have a diploma in financial planning, I am not licensed to give advice.

        To answer your question properly would require asking you a lot more questions, of which I do not have the spare time for.

      • Cosine – a diploma in financial planning is not a substitute for an appreciation of investment strategies. It just means that you are qualified to shuffle money into a fund and overcharge people for that service.

      • @ FF – only a small number of investors remain negatively geared over the long term. Aggregate rental incomes are far higher that the aggregate interest cost.
        It will be interesting to see the aggregate ato figures for 2013.

      • Peter

        For me the only value in the Diploma was that it helped to think more long term about what I want to do. Don’t dispute your comment that it’s not that helpful.

        For me right now, the best investment I can make is putting time into a business I am starting, because fixed costs are low and it utlises my skills and experience.

        If starting a business wasn’t an option, I guess I would try and keep my living costs low and save money to buy equities when the ASX200 next goes down below 4000.

        About 10 years ago i was reading all the property mags and thinking about the negative gearing thing (and would no doubt have made money if i did buy property) but i felt uncomfortable about the dynamics of the whole thing so didn’t pursue that.

        One important point is whether you are aware of and OK with the potential downside of what you are doing.

        As an example, a colleague owns his own home outright and has taken out an interest only loan to buy a negatively geared property. He works seven days per week to keep it going.

        He is risking his home and his health in the hope that someone else will come along after him and borrow even more money than him to cover the monthly loss he makes and then hopefully to make a profit.

        If we are going to invest in a “scheme” that we believe has a good chance of making money we need to understand how that scheme actually makes money as a starting point.

        Warren Buffett has spoken about the fact that he never invests in businesses that he doesn’t fully understand.

        Do you understand how it is possible for house prices to continue to rise each year?

        Do you know where the extra money comes from to bid up that house down the road a little bit more each time it is bought and sold every few years?

        Do you know whether the process is sound?

        Do you know how safe it is?

      • @PF

        That’s the point I am trying to make Peter. IN THE LONG RUN! You need the cashflow to sustain the losses to get to that point.

        Moreover, this has only been happening for a decade, no one really knows what the long run is.

        Edit: As they say, in the long run we are all dead and that is the only certainty.

      • Cosine – I did write a reply but it went to spam.

        Hi FF – you do know that some tax deductions are deductions of convenience rather than imposts on cash flow don’t you? You do know that everyone who owns investments or runs a business is madly maximising deductions don’t you?

        Have a look at the details yourself – you can download them from the ATO here –

        Note that is property owned by individuals, it’s not necessarily residential property but it mostly would be.

      • @PF

        I am not stupid and I own property too (not residential). Ofcourse everyone is trying to claim as many deductions as possible. I have done enough sets of numbers and seen enough examples to know that many would be squeezed out or severely reduce their RE investments because they would not have the cash flow to sustain their losses if it were not for NG.

        If your rent is not covering your major expenses (interest + rates + insurance + agents fees) you are in neg cashflow no matter what magic accounting trick you want to pull out including depreciation.

      • @PF

        I took the spreadsheet you linked, added up the income and added up only BC fees, borrowing expenses, rates, insurance, land tax and admin fees. Then I added interest expenses *1.2 (assuming a 80% lvr on all properties give or take). These are unavoidable expenses no? that cost cashflow?

        Guess what happens when you subtract the expenses from the income? A whole lot of negative numbers … oh no!

      • You assumed an 80% LVR – what is that all about? I really don’t follow you on that.

        If I add back depreciation and on off capital costs the aggregate is neutral. In 2014 it should be positive

      • @PF

        As a great investor, you should know that you count the interest on your deposit as well. I am assuming an average LVR of 80%. Therefore actually interest would be 20% more.

        If I add back depreciation and on off capital costs the aggregate is neutral. In 2014 it should be positive

        Peter you’re the one how said.

        you do know that some tax deductions are deductions of convenience rather than imposts on cash flow don’t you?

        and I removed those …

        If I add back depreciation and on off capital costs the aggregate is neutral.


        Now if you were talking about real numbers, those are so heavily skewed by those that bought 20 years ago and commercial props, its not funny. If we were to look at the last 5 years, it would bring a tear to the eyes of the little landlords.

        Go to bed Peter, you might dream up more fairy dust accounting techniques to support your case tomorrow….and we’ll be quite happy to tear it to shreds ….

      • Ah OK at least I understand what you are talking about now. Yes I calc interest on 100% of the PP when I’m doing my analysis. However you are then not taking capital gains into account, or do you not include them?

        BTW you moved the goal posts.

        I get told often here to invest in a new business or shares because they are a lower risk investment (see above) but people fail to see the risk there because it compromises their bias. There is risk in housing, all property. There is also risk in term deposits. it’s a question of balance, that’s all.

      • @PF

        Ofcourse there is … and I am actually biased to your side in my calculations. If I were buying today, the numbers would be much much worse…..

        To answer your question, no I am not including cap gains because the question was about NG and cashflow, not overall outcomes.

        However, any investment strategy that is loss making (I should clarify this as being cashflow negative) and reliant on cap gains to succeed is inherently unsustainable, I hope you can atleast acknowledge as much.

        People make their own judgements. The risks are always there. Risk pricing on the other hand may not be correct. This is another fundamental problem I have with residential investment (The first is that it is cashflow negative). The pricing assumes no risk!

        Atleast with shares and bank deposits you can liquidate fairly quickly and are being paid in the meantime.

        Moreover, typically you can’t leverage to the hilt. That is the big danger …

  12. Totally support UE’s continuing campaign on NG.

    However, we should not underrate the other big benefit from the 50% CG discount for investor properties.

    For a family property purchased and developed in a major Vic regional town in late 1985 (pre) and early 1986 (post CGT), I have just estimated the capital gains due. If the land component was CG taxable (fortunately not), the CG would be halved based on the 50 % discount method compared to if a CPI indexed land value was used.

    Perhaps the 50 % discount approach was brought in because ‘smart’ Oz property investors cannot understand a CPI index adjustment?

    How much higher is the benefit of the 50 % CG discount to people flipping in 2-3 years?

  13. Send in this article. They respond!

    Real Estate Institute of Australia
    16 Thesiger Court | PO Box 234, Deakin ACT 2600
    Ph: (02) 6282 4277 | Fax: (02) 6285 2444
    http://www.reia.com.au | [email protected]

    Dear Mr Armstrong,

    Thank you for your email. I have brought this to the attention of my CEO Amanda Lynch.

    Kind regards,

    Administrative Assistant
    Email: [email protected]

      • ewsydney995MEMBER


        “The increases of 57.5% in Sydney, 38.0% in Perth and 32.0% in Brisbane were calculated using the REIA historical dataset by comparing the median 3 bedroom house rent between the June quarter 1985 with the June quarter 1987.

        I understand the graph in the article shows the line for Australia while we are using the figures for capital cities. Median rents increased markedly in these three capitals, however Melbourne, Adelaide and Canberra showed less significant growth”

  14. Hill Billy 55MEMBER

    For those who think Brisbane property has not turned, the unit I live in was sold in June 2014 for $312,174, which gave the previous owner a loss as they purchased in July 2011 for $320,000.

    On that basis the new owner is getting a gross yield of 5.33%.

    • Might be time to head back to brisie. The Mrs has been giving me shit about buying a place….

    • BUT BUT Real Estate never goes down?????

      Perhaps you should push for a rent reduction to take the new owner’s yield back down to the market average of 3.5%

      • Apartments in Brisbane are reaching an oversupply, but nice family homes within 10 Klm of the CBD are in undersupply and will remain thus for as long as the sun rises in the morning.

  15. I think the politics involve pointing out to the boomers that NG will not serve them in retirment and so to support the removal of NG so govt finds can be diverted to pensions etc…

  16. Went on a political rant today.
    Messaged several members of parliament regarding NG and foreign investment.
    Should be good to hear another cut and paste reply like the last i got from kevin andrews and tony abbott.
    Shell be right

  17. I’m saving my money (currently in the Bank), when all of this (housing market) blows over or “bubble” pops, should I move my money now? Where to? are Credit Unions safer? Any advice would be great.