As I sat this morning drinking my coffee on my own, I picked up the SMH which was folded on the comments page with an illustration of 4 bricks, each one surrounded by people. It quickly grabbed my attention because the bricks with the most people around it were labelled +negative gearing and -capital gains.
This article written by the SMH economics editor Ross Gittins goes on to write about Sydney’s housing price boom and how the efforts of politicians to reduce the cost for first home buyers are actually counter productive and are doing quite the opposite. The tax breaks in place by the government at the moment for investment properties such as negative gearing and 50% discount on capital tax gains mean that the competition first home buyers face is extremely tough.
This article got me thinking back to one I had read in late 2015 comparing the Australian residential property market to that of Europe and in particular Dublin during their boom years. This graph shows the Australian bank’s proportion of residential mortgages as of 2015, I have not seen a recent one but based on what I have seen in Sydney I’m sure it has increased.
If the current lending rate from the banks increases will all the people with investment properties be able to keep up the payments if they are already negatively geared? Probably not.
If investors were no longer competing with 1st home buyers what would that do to housing demand? Shrink it massively.
How many properties will this put back on the market? Sky’s the limit.
What will it do to property and rental prices? Send them plummeting.
How will this affect the banks? Endless ways but selling property for less than what it was bought for is not good news..
If investors start to sell their investment properties it gives 1st time buyers the chance to be able to live in areas they would like to be in rather than they can simply afford. New estates being thrown up on the outskirts of the city with sub standard quality will be nothing more than ghost towns. I have seen them and I own one, much to my despair, it looms as a reminder what can happen so quickly.
This is only my opinion though and I advise you do what’s right for you, but do it because you want to, not because everyone else is. Keeping up with the Jones’ is a very dangerous game.