Negative Gearing Q&A
  • 19 December 2018

Negative Gearing Q&A

Thanks to all those who registered for our 'Lets Talk Negative Gearing' Webinar last week. We had an influx of questions come through on the night which we did not have time to answer, so I have gone through and answered those which proved to be very popular questions. Keep an eye out in the future for more webinars, as we look forward to addressing more of these hard hitting topics, that only at Property Club will you get the REAL answers.

Q - I purchased a property in Darwin through the Club 2 years ago.  Is this a place to invest now?

A - Rents are at an all-time low in Darwin, though still high compared to the rest of Australia, making any properties up there good for your overall cash flow.  I am watching the rental market carefully and when tenants start beating the rents up it is an indication of a shortage of bananas.  I will let you know as then will be a time to invest.  The extreme wealth in the NT is such that I think it will be the powerhouse of the Australian economy for the next 300 years.

Q - Do you think these negative gearing changes will be good for the Club and our members?

A - Yes.  Only because of education.  There will be a rush by builders to build to meet the surge in demand from uneducated investors who will be forced into only buying new.  This means there will be a lot of lightweight properties, quickly thrown up on outlying areas where land can be quickly gathered up to be built on.  Will they be rented? Problematic! This is why I am urging now to get into the quality areas that are already in short supply that are hard to increase the supply and rents are rising.  We have done the hard work for you.  Will these types of properties continue to rise after negative gearing? You betchya! Because the builders won't be able to build an oversupply in these areas.  They will be forced to go to outlying areas to find enough space to be able to build to meet the demand.

Q - Kevin, you commented on 7.30 from UBS static construction apartment and townhouses are at record highs.  Where does he get these numbers from?

A - I don't know, but I have no faith in UBS's predictions.  We give a review of economists predictions every year and UBS never feature as the successful ones.  I showed the construction output chart and they are certainly not at record highs, but record lows.  I showed the building permits to indicate future supply and again these are at record lows.  Looking at the crane activity in Brisbane it's at record lows with 22 from 100 in 2015 and a peak of 142 in mid-2016.  Perhaps the 7.30 report was very selective and ruled out those with positive facts.

Q - KY talked about new properties coming up.

A - I did and again it has to be the right property in the right location with the right sought of funding and they want to have ongoing tenants with the right tenant support.  Ask about our 13 critical factors that go into a successful property selection that helps demystify this process for you.  We do all the research for you and list these features with every property we select.

Q - The Reserve Bank has said we are in unchartered waters in relation to real estate property values?

A - The RBA is wrong again as the 20-year historical chart in Sydney clearly showed. In fact, Sydney has hit this point 6 times in the last 20 years.  Having said that I think our current Governor is the best that we have ever had, keeping rates stable and giving certainty to the economy and with the low exchange rate bringing in a lot of money for local, state and federal coffers.  That's the main reason we have got our budget deficit fixed.

Q - My initial plan was to NOT sell but, now that I will soon have to switch to P&I loans I will have to sell.  If negative gearing is not available on older properties, then the market for the sale of my properties will not include investors.  My market will be reduced to owner-occupiers only.  Are there any ways around this problem if I have to sell?

A - Very good questions.  Please don't "switch to P&I loan".  Why pay the bank 50% more each month when this 50% is not a tax deduction? Why pay this 50% when you have to earn 100% to pay tax to get this 50% increase?? You are right that with the herd rushing to new properties there will be fewer buyers for existing properties.  90% of investors actually look at these second-hand properties.  Soon they won't.  This will have a negative impact on the second-hand market.  The answer, of course, is to never sell and to never pay capital gains tax.  I am working hard to get our LibLabor Government to recognise asset lending in retirement as a legitimate and safe loan.  Until then, see my new KY retirement plan that fits in with the credit restrictions.  I'll do this in great detail on the cruise in the last week in January at our 25th Conference.

Q - Are the changes to apply to all investment income and capital gains or just on real estate?

A - Just real estate.  Though there is a good argument for having this applied to shares where the money would be directed to new ventures rather than currently just swapping bits of paper between investors but creating no real jobs.

Q - Of course the Club recommends to never sell but will the 50% capital gains tax discount also be grandfathered?

A - Yes.  Our member that was the Liberal party that bought the capital gains tax in a few years ago.  Once the door opens a bit all parties jump in and they never go back.  So the real answer is again, never sell but borrow and again look at my new KY Retirement plan that I will be doing in detail at our 25th annual conference.

Q - When do you think the changes will apply? From the date of the election? From the 30th June? The first budget? Or some other date?

A - Good questions.  The answer is it will apply from midnight on the night of the first budget that Labor brings in these negative gearing changes.  All new properties up until that point will be legal as is now.

Q - How long do you predict the negative gearing changes to last? And the capital gains tax changes?

A - The last time it was 18 months.  The last time there was not a critical shortage of supply in the market and so there was no uproar from tenants facing rapidly rising rents, as will happen this time.  So the question is, will the changes last 18 months this time around?

Q - Why not apply the CGT provisions to the family home - they would make heaps more money from that.

A - With two-thirds of voters owning their own home, this will never happen.  Though the Governments are creeping towards this and soon when your estate sells your home the Government will reach out and reclaim from those monies all pension payments to the deceased.  An inheritance tax.  It's coming. My new KY Retirement Plan has a solution.

Q - After the proposed changes are bought in, if a newly purchased property is cash flow positive before tax treatment, will the positive cash flow be added to my personal exertion income? Surely it can't cut both ways?

A - Good question.  This has to be clarified.  Would the separate rental income enjoy the tax-free threshold before going across to added income? It should! But will it?

Q - If not, won't we just be more conservative with our borrowings so that we are cash flow neutral or positive?

A - I think many people will be lead down this wrong path of concentrating on cash flow when they should be concentrating on capital growth.  It's this increasing wealth that you can tap in to for a great lifestyle.  Those who concentrate on cash flow will have little to rely on except taxable rental income.

Your next step is to book a time with your own property mentor. We can help to facilitate this, so please contact enquiries@propertyclub.com.au and we can get you in contact with one another.

Onwards and Upwards

Regards,

KY

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