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There is Nothing to Worry about for Investors Who Are Negatively Geared. Negative Gearing is Here to Stay

As we said in our blog on 16^th February, the political and media scare campaign is definitely on. Again we’ll reiterate that virtually every year for the last 20 years, there has been some scaremonger in the media about changes to negative gearing “in the next budget” but negative gearing is here to stay.

So where are we up to now? Well it appears that Mr Turnbull and his government has decided to drop the idea of change completely and attack Mr Shorten and his Labour team with the usual political scare campaign.

The scare campaign by the Liberals got a little bit messy during the week with the Government arguing with itself apparently that the changes proposed by Mr Shorten would see the price of property become even more unaffordable but on the other hand, house prices would drop considerably!

This contradiction was eventually ‘explained’ with a couple of statements that still don’t make any sense. What the Deputy Treasurer meant to say was that brand new property, which would not be affected by any Labour change, would become so popular with investors that prices would go through the roof! However, as there would be no investors (or very few at least) buying second hand property, then the second hand property market prices would collapse. Makes sense until you actually understand where investors get their money to buy investment property; yes most obtain their funds through a lending institution such as a bank. As we all know, banks are very careful about lending against property and will not lend until they do a valuation on the property. One of the main criteria of bank valuation is ‘comparable properties’ in the area. If a comparable second hand property has just sold for a lot less than the brand new property the investor is hoping to buy, then the bank will almost certainly value the new property at a comparative price to the similar second-hand property. So the question is where will the investors obtain the money to buy new property if it becomes so much more expensive than the similar older property?

I’d say it’s virtually impossible for a two-tier market to emerge between older and new property simply because the lenders/banks will not allow this to happen.

So again, if Labour do get elected, their policy is not going to make a lot of difference to property prices, current investors are protected by the new rules being “grandfathered” and the bottom line is that, like all other discussions over the last 20 years, we can expect this debate to disappear and be forgotten…. until about next year at this time when it is guaranteed there will be some mention of change in the media again!

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