Latest / The Follio Property Podcast / BREAKING NEWS | Negative Gearing Now Scrapped? - The Federal Budget Leak?

Transcript

BREAKING NEWS | Negative Gearing Now Scrapped? - The Federal Budget Leak? · The Follio Property Podcast

• 0:00
  This episode is brought to you by Accenture. When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales, using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify.
• 0:31
  This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+. You're in policy ahead of the election. No. So you're completely ruling it out.
• 1:01
  I think that was a pretty clear answer. Negative gearing is off the table. It's off the table. Lachlan, hot off the press today. Albo has come out against the negative gearing promise that he made a few months ago. What's your immediate reaction to that?
• 1:19
  Really disappointed. I don't think I can articulate how frustrated I am, particularly when you've got a government that lost an election pretty well on the basis of this one topic, right, and made a promise to all the voters...
• 1:35
  that they weren't going to try to approach or ever consider removing negative gearing. That was pretty much the election promise. And here we are coming up a week now, seven days away from the May budget, and we've got intel inside of parliament, Reece. This is not speculation. This is very good intel that they're looking to eradicate negative gearing completely. Albeit grandfathered, they're looking to get rid of it.
• 2:02
  The thing is, people are going to listen to us and think, oh, they're just property investors. The negative connotation that sometimes comes on this from a sentiment perspective. But when you actually look at the data,
• 2:12
  2.2 to 2.3 million property investors in Australia and over 80% of those don't have more than one property. So this isn't just hitting the greedy landlords out there or some of the polarizing figures that we see like the Jack Hendersons of the world. This is hitting everyday mom and dad investors. It is. This is the middle class. And not only that, Rayce, this doesn't just hit
• 2:34
  the fortunate people that can buy a home, what I'm really concerned about is everyday renters. And I think it's still fair to say that if you're in a position to consider buying a home, and this is the whole thing, they're building this story around, they're helping the average Australian to get into a property and they're trying to close this generational gap between the rich and the poor.
• 2:58
  Well, you're going to do that at the compromise of those that aren't fortunate enough to buy a home that hopefully are in a position where they can rent a home. You are driving investment properties out of the market. By doing that, there's going to be a significant increase in rents. And then they'll come out and they'll join up with the Greens and they'll say, well, we'll just cap rents.
• 3:21
  You might have a position where there'll be no rental properties. Like that sounds like you could say I'm getting carried away and be like, oh, that's not going to happen. But that's the reality. What is going to happen? Look what happened in New Zealand. Other market, look what happened to Australia back in the 80s when we got rid of negative gearing. We saw rents rise in double-digit growth.
• 3:39
  And then who's more vulnerable? Those that are in a position that I can't quite afford to get into the market. I've got a 20% deposit, so I've got a couple hundred thousand dollars in savings, but I can't get into the market. Or those that have no savings, you know,
• 3:54
  might have a single parent that just lost their job, that are trying to get a rental property. That's who it hits. So they come out, Labor government comes out and say they look after the everyday Australian to help the lower and the middle class. That's just bullshit. They are going to destroy the most vulnerable people
• 4:14
  demographic of the Australians and that's those that don't, they're not a luxury position to buy a home race and that's what the news story needs to be around. And I'm frustrated and you could say, greedy landlords and we're an investment podcast. No, what about when I was at university trying to get a property and it was really difficult because you didn't have a rental history? They're the ones that are going to miss out.
• 4:35
  And, you know, you're very passionate about this throughout the podcast over the last 12 months. It's a supply issue that really needs to be sorted to solve the housing crisis. And you've only got to look at other comparable markets across the world like your Londons, your Torontos, some cities in America that don't have negative gearing. They're still having the same property crisis as what we are and the narrative is all around it. It is investors that are taking up all that stock.
• 5:05
  Yeah, well, we're like – what other country in the world where it's common to buy a home? It's still a bit of a luxury and I know it's the Australian dream and our job, you know, as property advisors, to help people to fill those dreams. But I still go back and I look at the most vulnerable and it's not your first home buyer that's got money. It's your renter.
• 5:27
  And you look at negative gearing, it's almost like a subsidy for, you know, the government gives the average renter because it's increasing supply in the investment market. You know, you are giving the investor a benefit to help, you know,
• 5:42
  reduce the cost of holding that property, therefore bringing on more supply, which then keeps a balanced market for available rental stock. And that's why vacancy rates, a balanced market for rentals is typically between sort of 2% and 4%. We're going to see at the moment, if you look across Australia, it's the most undersupplied market that we've ever seen. And this is something we've talked about a lot on the podcast and
• 6:08
  We have a shortage of properties nationally and we can't solve that quickly because we've got a supply crunch through building conditions, an incompetent government that really has absolutely no idea what they're doing when it comes to housing supply. And now they're trying to really remove the one avenue that was actually helping and contribute to rental properties.
• 6:31
  which was the middle class of Australia, the two million investors that are buying properties and using negative gearing as a vehicle to offset some of the cost.
• 6:43
  Because it is expensive. Do you think the government's going to step in and when markets like Sydney and Melbourne now that are having negative growth, so it's, you know, arguably investors are losing money and potentially, you know, at times where there is an oversupply and you don't have any rental properties, sorry, don't have any tenants, do the government then chip in and say, oh, look, we'll subsidize you, we'll give you a bit of a handout because you lost 20% on that investment. Don't worry, we'll cover that. They don't. This is bullshit. And they've lied to us. So...
• 7:12
  we've got seven days and that's why we're pre-releasing this. This is a bit ad hoc and wasn't pre-recorded. This is straight a live episode, Rhys. And I know you weren't a fan, but I think we had to get it out because I think this is going to have large implications if Australia doesn't lobby around this in the next seven days to get a better outcome. Looking at, you know, from a negative gearing perspective, one of the big narratives, I guess, that's been pitched is it's going to,
• 7:40
  free up the housing supply for homeowners. Do you see that happening? If negative gearing is removed, do you see max exit of investors or will they hold properties like you've mentioned and then look at rents to increase, which is going to affect the tenant at the end of the day?
• 7:55
  Yeah, well, the word or the intel that we've got, Rhys, is it's going to be grandfathered. So what does that mean? All my properties, they're my sell-down strategy, which would typically bring more supply to the market, as if you're going to sell a property. You're going to hold on to it for as long as you possibly can until that debt's paid down completely. Where you do, you get no negative gearing benefit. So it's going to probably put a handbrake on supply, making it harder for those that are looking to get into market.
• 8:21
  because you're not going to get any sort of liquidy events. So I think it will actually create more of a clog in that funnel of supply coming onto the market, and that's going to create more sort of pressures down the road.
• 8:36
  And we've looked at – like we've got some data here from when in Australia they actually removed – during negative gearing removal from 1985 to 1987, rent surged in tighter markets. So we've mentioned previous – The double-digit growth in rents when we've removed negative gearing. Look at New Zealand. They introduced this a little as three years ago. It lasted just over 12 months and then they –
• 9:01
  you know, change their tune around it because it had a detrimental impact to the market. I think this is the, you know, the key things that we're looking at from a historical standpoint in Australia and also neighbouring countries where it's shown little impact from a house price perspective and actually more from an impact on those renters as well.
• 9:25
  markets will find a way to work themselves out. And unfortunately, I just got off the call to a financial advisor, very sophisticated in this space, and pretty much said there'll be ways that we'll be able to exploit this. There'll be ways that the smart money... He said previously when negative gearing was removed, we could do a lot through trusts and you could lend through trusts and then you could still get a benefit. We may look at buying properties through companies. So the smart money will find a way to get a benefit.
• 9:52
  but you've made those that they're trying to arguably help, which is typically middle class or lower class, you're going to make it extremely difficult. They're going to have to go and pay for advice, get more educated in the ways that they can start to look at to get a benefit. So straight away you're hurting the people that you're trying to help. So it's, you know, we'll find a way and we'll have someone on our podcast hopefully soon to how our clients can probably exploit this. But don't,
• 10:18
  Don't try to handicap those that are actually trying to get ahead, but also don't handicap those that are finding it difficult to already find a rental property by reducing the amount of stock in the market. And I know they're saying they're going to continue negative gearing on new property to try to create more supply. Absolute nonsense.
• 10:38
  Absolute nonsense. You're just going to encourage the wrong activity. What happens in Brisbane? You get a run of apartment and poor quality stock come to the market where people are whipping up apartments, low spec, had all the issues with flammable product. It's going to be a flight to who can –
• 11:02
  solve this issue in the cheapest way they can do so. And typically it's going to flood to that apartment stock and who ends up with terrible outcomes is typically the consumer. Yeah. I mean we focus a lot here on the everyday Australian that is that renter. That's going to affect them the worst, as we've said. And that's who they're meant to be out to help, right? They get support from the Greens. The Greens are all pro-renters. That's who they're meant to be helping. How can you be so short-sighted to say, okay, if I –
• 11:32
  reduce a benefit for investors, there's not going to be more investors that participate. And where else do we get investment properties from? We're not like America where there's large institutes that have thousands of bill to rent. Australia hasn't, the take up of bill to rent has been really poor and now they're trying to, you know, incentivize bill to rent. So, okay, let's make it easier for large corporations to provide stock. No, how about you just help everyday Australian to bring on more stock?
• 12:00
  There's a bit of a perfect storm. Like as we're recording this, we've just had the RBA announce another cash increase as well. So you've got – Yeah, that happened, what, three hours ago? So you've got another rate rise, which average on a 600K mortgage, you're paying an extra 90 bucks a month. So you've got headwinds from this perspective as well. And then if you are that mum and dad investor, like we've said there with the stats that maybe have only the one investment property –
• 12:23
  they're having to force from a negative gearing aspect and also some of these rate-increased environments, they're now going to have to pass it on to the tenants. Exactly. So let's just take a stand back and look what our fantastic government have done over the last 12 months, Rhys.
• 12:40
  They've just... And we had Leith on previously that talked about this. And I don't want to get on a rant because I don't like ranting. I typically like to talk about other things other than government policy. But...
• 12:54
  They have just put fuel on the fire with that first home buyer scheme, pretty much gifting money. And talk about the most vulnerable. Who's going to be most vulnerable now when interest rates were at what, I'll call it mid to high fives?
• 13:11
  In November, you might have been able to get a loan at 5.2, 5.3. First-time buyers were getting 95% when interest rates were in the fives. Government's saying, yep, go buy a home, stretch yourself, get dead up to your eyeballs.
• 13:29
  And then here we are six months later as we're seeing three rate rises because there's inflation and they're trying to offset that. Well, we can't control the war in Iraq. No, you keep giving out money. You keep surging inflation, everything they've done with energy costs. So we've got a massive inflationary environment.
• 13:48
  Gifted out cash. Now who's going to really suffer? Those first-time buyers that were doing all their modeling, all their saving when interest rates were in the fives, now they're well in the sixes. And some of these are bought in a market that are now declining. Who's a flight risk now? Who's the most vulnerable? Those that you're trying to help, to those that you've been trying to help, they're up to their eyeballs in debt in a rising rate environment.
• 14:11
  And then not only that, let's really kick the tenants in the ass and get rid of the investors. Then we're going to see a surge in rental prices by renewing negative gearing. Like, what?
• 14:22
  Do you know what's fascinating, Rob? This whole – this move is to appeal to the younger voter because I know they take up most of the voting power now with the upcoming election. But as you said there, the people that it's going to impact the worst are those that have just bought a house, the first-time buyers, which are going to be the cohort they're trying to appeal to from an election standpoint. And also those first-time – would-be first-time buyers are all renters. So they're going to get the impact from the rent increase. And the people that –
• 14:52
  Everyone's perceived, you know, the boomers, they're the ones that have, you know, stuffed the economy up and holding on to this assets. They're taking all the gains. They're not even going to get affected by this because none of their properties are going to be negatively geared. So actually the policy that they're trying to target is actually the people they're trying to target with this change, it's actually going to have the complete opposite effect.
• 15:11
  Yeah, because look at the stats race of how much property value is in Australia and how much debt across them. Yeah. It's much lower than you expect. Exactly. So we're looking at about $11 trillion in property versus $2.6 trillion in debt, so about 20% LVR. So across the country, there's 20% loan-to-value ratio. So all the people that you're trying to impact, you're saying all this old money, all the boomers that have taken all these gains, they're the ones that use negative gearing as a benefit.
• 15:39
  Well, that's just not – those stats tell me that's not correct. We want to help those middle class now in the market to get ahead, to get an advantage, to be able to subsidize some of the costs of holding property because holding property is a risk. I think for the last six years the property prices have gone up that everyone's going, oh, these greedy investors. What about the decade previous when there has been losses and you don't get a benefit on those? Yeah.
• 16:06
  20% loan to value ratio across the board. To go out there and say that, you know, to target the cohort, like you said, they've just completely missed the mark.
• 16:17
  We've really been touching on negative gearing here, but the CGT is floating around as well. And there's a few different things from our intel from what we're hearing in terms of the reduced in the redemption that they can claim. Also some grandfathering rule that's kind of getting thrown around on that as well. The old index station method. Yep. What's your thoughts on that?
• 16:39
  I'm sort of in shock from negative gearing, Darius, and we thought they weren't going to touch negative gearing, right? And this is how quickly things can change. But the indexation model will actually, you know, won't have as much of an impact as probably what everyone thought it would. I think when you looked at some of the modelling, they were looking to get rid of, you know, capital gains altogether. They were looking to reduce it to 30%. So...
• 17:03
  Look, it's still a modest impact, but again, it's a bet against inflation. At the moment, we're in such a large inflation environment that the tax benefits in some situations are actually better. It's interesting. We had Ben Kingsley on our podcast maybe six weeks ago who had his ear to the ground in terms of some intel himself. And since then, we've heard –
• 17:26
  there was less talk about negative gearing. So it really sounded like that maybe it was off the cards. And then all of a sudden in the last couple of days since the weekend, it's been pitched. Now we obviously have the intel that they are proposing this. Fast forward seven days' time when the budget comes out, do you see this following through in terms of removing negative gearing altogether?
• 17:48
  That's the intel rates like it's what I'm told there will be no flex on this. And, you know, obviously the groups that we're a part and some of the larger institutes that we're obviously part of PIPA and those sort of movements...
• 18:05
  are and will try to lobby against this. And this is the problem when Parliament makes decisions. They don't approach those in the industry to see how it's going to impact. And clearly we can see it. So I think it needs to be a joint effort by investors, those that listen to this podcast. If you make enough noise, we saw this, what happens with Queensland, when they brought in the state-based tax, within weeks they removed that policy. So if we make enough noise as an industry to...
• 18:32
  Not to create change at the benefit of investors or greed or anything like that, but have some common sense to look at this holistically and say, actually, is this really the right step in the right direction for everyday Australians? I think if we can clearly see that, and certainly I can, that this is going to have a huge impact mostly on renters. We're going to see a surge. And then if you look at that, if rents go up by double-digit growth for the next three years...
• 18:57
  who's going to benefit investors right there's going to be another way that investors will manipulate the market which is going to make it more attractive at some point potentially when rents rise so i think we need to lobby together collectively in the industry to make sure that in the next seven days and that's why we're bringing this podcast forward make enough noise and hopefully our voice will be listened to and they'll reconsider
• 19:23
  Let's get you out with this one then, Lachlan. So, you know, we've gone from not much noise around the negative gearing to the intel that we've heard over the last couple of days. It's been leaked, right? And, you know, read any paper today. It's now, you know, we heard this yesterday and now it's become more public knowledge. So it does feel like there's going to be some level of reform around the current policy. What is your opinion on, you know, if there is a reform on negative gearing, what's a fair outcome for all?
• 19:50
  When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a $75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsored Jobs.
• 20:20
  At OLLI, we've got wellness down to a science. From PMS to pregnancy to menopause, our women's wellness line offers science-backed support for every stage. No judgment, no shame, none of the stigma. Just supplements designed to meet you wherever you're at. OLLI, choose science over shame. Find support at a retailer near you or on OLLI.com. That's O-L-L-Y dot com.
• 20:45
  I think at a bare minimum, at least cap it to a number of properties. Give every mum and dad investor some benefit to want to invest in property to create more supply. At least provide some, I guess, supply solution to those that are renting at the moment. If you completely remove it, you're going to find we're in a far worse situation in 12 months than where we are now when you look at the amount of rentals available in Australia.
• 21:14
  We're going to have an episode next week as a reaction straight off the budget. So for those watching, listening to the podcast, episode will be coming out a little bit later next week. Like this one's probably come out this week. However, it is going to be a live reaction to us, I guess, and we'll try to get out as quick as possible.
• 21:29
  Hopefully we're in a better mood than I am today, Rhys, because that was really disappointing, some of that intel that's come through. But again, let's not sit back and do nothing or say nothing, make some noise and see if we can get the government to reconsider making what will be a detrimental decision to Australian investors and landlords as well as tenants. You've been listening to Folio Property Podcasts.
• 21:53
  Hi, Ryan Reynolds here for Mint Mobile. Are you looking for a beach read this summer? May I suggest your big wireless bill? It's got suspense, mystery, a slightly flat emotional arc, and a shocking twist where you realize you've been overpaying the entire time. Fortunately, though, Mint's story is better. Every plan, $15 a month, even unlimited. That's it. Happy ending. Zero tears. Give it a try at mintmobile.com slash switch. Upfront payment of $45 for three months, $90 for six months, or $180 for 12-month plan required. $15 per month equivalent. Taxes and fees extra. Initial plan term only greater than 50 gigabytes may slow when network is busy. C terms.