Ensure you never miss an issue of the
real estate business bulletin
Negative gearing grows rent rolls

Negative gearing grows rent rolls

by Elyse Perrau 2 comments

As negative gearing hits the national agenda once more, leading property managers warn that abolishing the tax break would see rent rolls shrink dramatically.

The final report of the Financial System Inquiry, released on Sunday, said negative gearing and capital gains tax “distort the allocation of funding and risk in the economy”.

“The tax treatment of investor housing, in particular, tends to encourage leveraged and speculative investment,” the report said.

“Since the Wallis Inquiry [in 1997], higher housing debt has been accompanied by lenders having a greater exposure to mortgages. Housing is a potential source of systemic risk for the financial system and the economy.”

Leading Property Managers of Australia executive director Bob Walters said when former Prime Minister Paul Keating removed negative gearing back in the '80s, it had the initial effect of flooding the real estate market with properties.

“A lot of investors decided to get out of their property investments because they were not getting any tax benefits,” Mr Walters told Residential Property Manager. “So there was an immediate increase in stock on the real estate sales market, which obviously has the ability of flattening prices.

“But because there were fewer investment properties left, what happened is, the rental market tightened and rents increased rapidly. Usually, the people hurt the most from the abolition of negative gearing are going to be tenants,” he said.

“As to how it will affect the PM industry ... [if] investors no longer hold their property investments, they will get sold, and chances are a lot of them will be purchased by owner-occupiers. So, the size of rent rolls will be affected."

Realmark corporate director of property management Sara Young agreed, saying negative gearing encourages investment, and its removal is likely to result in a shortage of rental properties – a situation witnessed in Perth in recent years. 

“If negative gearing is abolished, I believe it would drive investors away from rental properties,” she told Residential Property Manager. “In turn, this could lead to a shortage of rental properties, pushing rents upwards and potentially leading to housing affordability issues.

“Whilst I cannot speak for all of the property management industry, many of us in Perth have seen, in recent years, the issues faced with a shortage of rental properties. The abolition of negative gearing could lead to a similar undersupply.”

Negative gearing grows rent rolls
lawyersweekly logo
promoted content
Recommended by Spike Native Network
Listen to other installment of the Real Estate Business Podcast
reb top 100 agents 2017

The REB Top 100 Agents ranking is the foremost ranking of agents in Australia. It has set the bar for excellence in Australian real estate. To be ranked as an REB Top 100 Agent is the standard real estate professionals strive for. See the full 2018 ranking here!

featured podcast

featured podcast
An industry where the resilient succeeds

Tim Heavyside believes that a strong support team and good foundations are paramount to success in the real estate industry, and with regu...

View all podcasts

Would you consider working for Purplebricks or a similar 'DIY' model?

Yes (7.2%)
No (80.9%)
Perhaps - make me an offer (12%)

Total votes: 209
The voting for this poll has ended on: July 13, 2018
Do you have an industry update?