First National Real Estate CEO Ray Ellis has called the government out on its ‘bluff’ to get rid of negative gearing, saying it does not make economic or political sense.
“Talk of cutting negative gearing only adds to a worsening situation where property investors are already opting to stay out of the market,” Mr Ellis said.
“Ongoing investment in property is crucial to Australia’s economy, as well as maintaining a healthy rental market. Any changes to the current policies could have a detrimental effect on this country’s economic stability, as well as the future supply of rental properties in an already tight rental market.
“At the end of the day, it will be struggling renters who will bear the brunt of this burden and they may be forced into relying more heavily on government welfare agencies and government funded housing for their very survival.
“I just can’t see this happening. It is pure scare mongering on behalf of the government to even suggest that they are seriously considering cutting negative gearing.”
Mr Ellis said the property market is already doing it tough with higher interest rates, worsening affordability and an evident lack of investors and first home buyers. In addition rents are set to rise by a further 7 per cent in capital cities, on top of 4.5 per cent rise in the March quarter, as a result of low vacancy rates and a shortage of supply of suitable available accommodation.
“Vacancy rates continue to be tight, and first home buyer and investor activity is low. We have suffered seven interest rate rises since October 2009 and new supply coming on-line is quite constrained, amid a host of natural disasters,” Mr Ellis said.
“Add to this the ongoing unstable European and Japanese economies and consumer nervousness is increasing at an exponential rate.
“What needs to be remembered is that negative gearing ensures a significant supply of rental housing, which serves to hold down rents. Any dislocation in investment housing would affect those who can least afford it - people who pay rent.”
Investors considering overseas property markets as a means to overcome any ‘proposed’ government changes to property policy are warned by Mr Ellis to be wary and exercise extreme caution, or simply buy locally where investments can be properly assessed.
“In some countries, like the US, there is a practice commonly known as ‘flipping’ where property promoters purchase a property cheaply from banks and then sell it to Australians for an inflated price, but one which appears to be good value to Australians,” Mr Ellis said.
“But what they discover is that their house is poorly located, has frequently been vandalised, and can prove impossible to rent. With the national vacancy rate over 13 per cent, US renters get to be quite choosy about where they live and won’t settle for less than their money can afford.
“This situation in the US is expected to continue for some time and the recovery is expected to be long, slow and painful. Our strong advice is for investors to keep their money at home, where it belongs and not be put off by government scare tactics.
“They should be gearing up to take advantage of a local market which is ideal for their needs. The market is cooling and prices are coming off, good loans are available, good fixed rates are on offer, the banks are in real competition and there are less first-home buyers competing with investors.
“In addition, rental yields have been increasing and vacancy rates in many areas are well below 2 per cent – all positive signs for the investor.”