Property industry mixed on report Government is examining changes to negative gearing

The property industry has mixed views on the prospect of tinkering with negative gearing and introducing a new tax for investors with a large portfolio of investment properties.

According to a report in The Age, the Gillard Government and unions are believed to have discussed introducing a 4% sales tax for owners of multiple investment properties and a reduction in the 100% negative gearing-tax benefit property investors with more than one property can currently claim.

However, the Treasurer’s office declined to comment on the suggestions this morning and it does not appear the proposals have got past the discussion stage at this point.

While changes to negative gearing would likely have the property industry up in arms, Louis Christopher, managing director of SQM Research, says such a move wouldn’t cause Armageddon.

He says a scaling back of negative gearing would likely see property prices fall, but rental yields rise.

This adjustment would take about 18 to 24 months, Christopher says, but then investors would return, attracted by higher yields.

Christopher says reducing negative-gearing for multiple properties is not a bad idea, and might cause big investors to sell their smaller properties in return for something bigger – which could then increase affordability at the lower end of the market.

“But the Government would then need to introduce an incentive to increase supply in the market place, such as incentives for developers.”

“I’m not a big fan on putting an additional tax on properties, because they’re already astronomical, and we need to see more turn over to increase affordability.”

Christopher adds that in the long-term, the property industry wants to see less of the Government in the property market, not more.

Stuart Jones, of buyers agents Rose and Jones in New South Wales, describes the possible changes as “ill-considered and knee-jerk”, and says they would have an enormous impact.

“There are approximately 1.19 million investment properties and those investment properties are for those who can’t afford to buy their own home or don’t want to buy their own home,” Jones says.

Figures from the Tax Office show less than 300,000 people have two investment properties, and more than 88,000 have three. The number of property owners claiming rental losses as a tax offset rose to 1.7 million by the 2009 financial year.

“Governments will always tax the minority,” Jones says.

“If they looked at the numbers more exactingly, they’ll find that a vast majority of investors are middle Australians.”

According to Jones, the Government should remove the goods and services tax on new properties to stimulate new housing developments and force the states to lower stamp duty.

“The problem is developers can’t afford to build.”

“We need to incentivise developers to develop, and lenders to lend.”

CPA Australia head Paul Drum told SmartCompany this morning he was not enthused at the prospect of another tax.

“There are too many taxes in Australia. We have got to reduce the 125 that currently exist,” Drum says.

“The risk of such a measure is that it would potentially erode the value of current investors’ investments, and it’s probably not the solution anyway.”

“The right way to go about it is getting a discount in the tax you pay on interest.”

“It’s fair and appropriate that governments and others brain storm idea. And this is probably not much more than an idea has been brainstormed.”

“But from my perspective, it’s not the right way to go.”

“Our issue has been that you need to have a look at the quantity of housing stock, and that gets back to freeing up land, and then build the houses, and you’ve got to back it up with some infrastructure so people are ready, willing and able to buy in those areas.”

Also in property news, monthly vacancy rates fell to 1.6% nationwide last month, from 1.7% the previous month, according to SQM Research’s monthly vacancy study, which measures online vacancy ads.

SQM says Sydney recorded a “very tight” 1.2% vacancy rate, with some suburbs in the western suburbs coming in at 0.8%.

Melbourne, by contrast, had a vacancy rate of 2.4%. While this was higher than the national average, the Victorian city has declined for three straight months, as has Brisbane. The Queensland capital’s vacancy rate was 1.7%, SQM said.

Across to Perth, and its vacancy was below average at 0.9%, while Darwin was at the other of the scale at 2. Adelaide’s vacancy rate increased in March to 1.2%, while Hobart’s followed suit by edging up 0.2 percentage points to 1.4%.

Canberra recorded a very skinny 0.6% vacancy rate for March, SQM said.

Meanwhile, Aussie Home Loans managing director John Symond has said the general consensus is the market is down 20% in volumes, and housing generally is in a cooling stage, swinging towards a buyers’ markets.