ANZ’s position on Negative Gearing

I went to industry meeting/forum on Wednesday about this topic.
I can tell you now, all the banks are pushing to abolish OR decrease the function of -VE ; There were no ATO representatives at the forum but im sure they were sitting at the back listing and taking notes.

ANZ talks about how it can improve housing affordability etc…<moderator: delete language> yes it may improve housing affordability …but ANZ being a commercial business has another agenda and that is to improve it's bottom line borrowing rate and profit.

This is how -VE affects the banks:
1. Higher chance of defaulting on loans…as a lot of investors are highly -ve geared = mkaing a lost every day = high risk
2. investors with -Ve property have high borrowing cap ie 90-95%LVR's and also it's mostly IO loans…
3. When the bank go overseas to borrow money the funder will look at the bank's lending book….if they have a lot of investors on their book their debt to "equity/title deed" ratio is much lower..especially when most of the loans are IO = Higher wholesale interest rate

End of the day, the more owners occupier loans the banks get the better- No monthly lost, most are 80% LVR, and always pay off quicker, on time and condition of home/asset is much better = better selling potential.

I personally think -VE will never be abolish , but instead it will be "diminished" ie A cap amount or will have a barrier on what can be claimed. Just look back when Paul Keating was PM and the -Ve was abolished….it was bought back a few years later….

Regards
Michael

That’s the way i view it as well.

Even though im a active CBD investor
sigh….

Help me understand. If I am an investor that keeps 80% LVR, yet uses negative gearing and depreciation etc to result in a positive net cashflow, am I still a target of this? I think yes, but am confused.

As far as I can tell, this will only cause a temporary drop in prices as;
Investors back off and try to put their rents up faster, with varying effects. The numbers won't stack up as well. (Except in mining areas where speculation will accelerate)
The quick owner-occupiers will take up the slack and the prices will go back to where they were.
Large developers still have the same costs to build, so new houses aren't going to be any cheaper. No extra supply.
Small developers usually leverage negative gearing to help their cashflow so they are going to back off. Causing a small decrease in housing supply. Especially in "in-fill" areas around CBD's where many state governments are trying to accelerate development.(Thus driving rents up further)
The "slow" majority of owner-occupiers will be too slow, by the time they buy the prices will be back where they were.

The only real winners will be;
The banks for reasons already stated. (Although I think they make alot of money "by-proxy" through investor rent income. We take the risk of full recourse, the renters and bank do not.)
The government. They will claim a victory for the working class man, which is absolute nonsense because rents will be higher and prices back to where they were. CBD regions will be worse due to the slowdown in "in-fill" development.

This happens, I invest more overseas (equities and property) more aggressively. Simple. That can't be "good for the nation."

Didn't they actually abolish NG  many years ago? From memory there was a huge shortage of rental property and they quickly reintroduced it.

@ Shape

Whilst some of your points are valid, namely how NG may affects banks. The banks have ultimately taken this risk on as they have an appetite for such risk (whether the basis for this justifiable is another debate) . As the banks have transparency over the cashflow position of investors or any borrower for that matter, they can choose to say no, we’re not lending to you because you’re negatively geared .

NG is not the problem, it’s the banks lending criteria that needs to be scrutinised as they should not be lending to certain individuals, which relates back to point one of your post “higher chance of default”. NG when managed appropriately can work well (although I personally prefer positive cashflow), however it becomes a material concern when individuals are given funding from banks which is disproportionate to their cash in flows.

In essence what I’m saying is that the banks have the capacity to control how much NG business they want in their books through more robust policies, however they also have to meet the demanding needs of shareholders and the board, so there is a constant pressure to achieve YoY growth.

Why point the finger solely @ property investors using NG? Equity investors should also suffer the same consequences. The ato cannot simply remove ng from one investment class but not another which uses similar principles.

What I would like to see happen:

State Government Remove Stamp Duty & rely on changes to land tax to make up the short fall, this should reduce land banking/property barrens & would allow a better flowing economy with more mobile workers.

Remove Negative Gearing & the massive speculation in housing (it should be predominantly used to live in and raise a family, with investing being secondary). Overtime property value & rent  trends will mate back up to create reasonable rental yields which will still mean investment, but not rampant speculation. It should be stable/consistent returns.

The only place I could see a benefit to Negative Gearing remaining is to drive the creation of new stock.

With Negative Gearing & Easy credit its just to easy for people to keep bidding up property on other peoples dime. Eventhough a small percentage of housing investors do their research and make good well informed decisions on what property to invest in. I think there is a large majority that invest in housing for "Negative Gearing" and don't really look at whether the investment is good or not in its own right.

Keep it so that Foreign Investors may only purchase to live in and must divest 'X' years after leaving the country.

I don't think high property prices really benefits anyone in the end, it just leads to a need to keep paying higher wages making us less competitive with other countries around the world. It means that new people into the market, our daughters, sons, grandchildren are going to have to work harder, longer and contribute even more of their income to property (which in the case of existing property is almost completely 'unproductive' money) which will mean a decreased standard of living. Also that money is being taken away from other industries (tourism, retail, agriculture, etc..).

What happens when the mining boom ends? what will we export then? all we are doing is making ourselves so big and expensive that we will price ourselves out of the world market.
Overall we are better off with cheaper houses & lower wages. Housing is so disproportionatly high compared to all our other living costs (food, cars, entertainment, electricity, etc..)

Hell yeah! *Claps*

But if there are less investors buying then there will be more owner occupiers buying and therefore less renters?

I think the main effect may be a decrease in new properties being built as investors would be less inclined to invest in construction. However, most developers would not be negative gearing anyway so maybe this won't be effected.

As the building industry is a major part of the economy and provides thousands of jobs, any decision that would adversely impact this industry would be very unpopular. Given the construction unions relationship with Labor, I doubt this will happen under the current government, and also doubt this will hapen under a Liberal government. Also with the current shortage of housing in middle ring suburbs, any legistation that would discourage urban infill development projects (which are usually bought by investors as negatively geared properties) would be a disaster.

Cheers,
Luke