Have you got a residential property that’s vacant? Well under new legislation being drafted by the Victorian government you could be fined, sounds a little crazy? That’s because it is.
The real issue about the residential property market in Victoria is the lack of supply, which alters affordability, restricting options and increasing prices. Many observers are blaming foreign and rental investors for pushing up the price and making the property market out of reach for first home buyers.
So, what options are the government pursuing?
- The Victorian Government has a plan to tax home owners who leave their properties vacant
- Allowing people to tap into their superannuation
- Pay the first home owners grant straight to developers
- Scrapping negative gearing
- Reducing the discount on capital gains tax
- Limiting the amount of investment properties to 6
- Restricting foreign investment
In Australia almost 30% of families rent, can the government supply that amount of rental properties at a reasonable cost? Almost 80% of rentals come from the mum and dad property investors, why destroy or tamper with this method of supply when you cannot come up with a solid replacement, use the KISS way of thinking and if it works don’t mess with it.
Mum and dad millionaires
Years ago, a large property investment group used the buzz phrase, “we only look at properties with an 8% yield” Yes, you guessed it, they soon revised that quotation. So, what do rental properties cost and what do they return? Not much, with the purchase price, legals, insurance, management fees, maintenance and interest on the loan and the risk of bad tenants and damage to the property, probably south of 4%.
To invest upwards of $700,000 and receive a return of less than 4% and have all the hassles of owning a rental property, these investors should not be penalised they should be offered incentives and tax breaks. Negative gearing on a property as above would probably amount to approximately $30,000 over the first 5 years of ownership, assuming the property was new, which equates to about $9,900 in real money (negative gearing is based on each individual’s specific tax position) or $1,980 per year, a figure which won’t break the bank or make them instant millionaires.
Most residential property investors are looking at building a retirement portfolio over many years with capital gains providing the greatest incentive, negative gearing then is a little sweetener along that long road. The government introduced superannuation so that retirees would be self-funded and not a drain on the economy and yet every year they pick at it reducing the benefits and tampering with it till it gets too complex and a Rhodes scholar is needed to interpret it and it becomes costly and untenable.
Have we become a country of whingers, NZ pays an old age pension to all retirees, irrelevant of your monetary status, (they are not just good at rugby) from a millionaire to a pauper you receive the same entitlements? Australia on the other hand penalises people for saving, investing and planning for a financial future, in other words, if they are hard working, save, pay off debts, create a nest egg for their retirement, lets tax them. Its unfortunate but we are gaining a negative attitude against successful people.
Lest we forget
We seem to forget the hard years of mortgage debt when interest rates almost reached 22% because of low interest rates don’t let’s get confused and blame mum and dad investors as the threat to a more affordable housing for first home buyers, leave the status quo or be prepared to live with the in-laws for many years.
a blog written by, James Hannah Tax Depreciation Specialist.