The regulators and banks have made life tougher for property investors. But all the uncertainty makes it a good time to consider this powerful way to create long-term wealth
Is negative gearing a strategy that still works? It’s a timely question. Let’s face it, property yields are low, capital growth is in question, the regulators want to slap limits on investor lending and the banks have responded with higher interest rates. Throw in the changes to depreciation perks and the removal of the travel allowances and it’s enough to make the 1 million or so Aussies who run a property investment at a loss – and those thinking of going down that route – to ask the big question.
I would argue yes, because ultimately negative gearing is not a strategy; put simply, it’s a tax outcome that represents a moment in time. Like a business owner who makes a loss in the start-up phase to ultimately make profits and build value over the medium to long term, so too does a property investor consider making a loss for only as long as it takes to build a big enough wealth base so that they too can move into positive-gearing territory, which will provide them with the self-funded retirement outcome they desire. Negative gearing is a means to an end, not a permanent way of life.
So, in my view, the real question here is whether residential property still remains a good investment because the taxation benefits you receive through negative gearing are temporary but, if done correctly, the impact of the capital growth and rental income from building your portfolio will be lasting.
But before we ponder that question, let’s look at exactly what headwinds property investors face.
Winter has come
The Australian Prudential Regulation Authority (APRA) this year introduced restrictions that have impacted lending for investment purposes. APRA is the prudential regulator of the Australian financial services industry, overseeing banks, credit unions and building societies to protect the financial wellbeing of the community.
Esta historia es de la edición October 2017 de Money Magazine Australia.
Comience su prueba gratuita de Magzter GOLD de 7 días para acceder a miles de historias premium seleccionadas y a más de 8500 revistas y periódicos.
Ya eres suscriptor ? Conectar
Esta historia es de la edición October 2017 de Money Magazine Australia.
Comience su prueba gratuita de Magzter GOLD de 7 días para acceder a miles de historias premium seleccionadas y a más de 8500 revistas y periódicos.
Ya eres suscriptor? Conectar
Is the public market shrinking?
Australia needs a healthy stock market to give companies access to funds and to allow retail investors to build wealth.
India: three steps to transformation
Massive investment and extensive reforms turbocharge the economy.
The ballet of business
Changing direction, products, models and marketing is a hard task for a business. We chart what it takes to turn a business around, plus profile four successful pivots.
Save money and the planet
Could the high cost of living give us the incentive we need to reduce how much water and energy we use or waste? These eco-friendly household tips will help you do just that.
AI adoption is the new black
Artificial intelligence is set to reshape the commercial world, and small enterprises can’t afford to miss the boat.
Spam attack! Murky laws jam our inboxes
Unwanted marketing material is one of the pain points of modern life.
From rags to riches in style
Rich Tran sported a bowl cut until he was 14 years old and had no intention of becoming a hairdresser.
New work deals are killing the 'old' office
The Covid pandemic and the subsequent lockdowns accelerated the trend to more people working from home. It was a mixed experience.
Points taken: the truth about rewards
Can hopping between credit cards really boost your frequent flyer haul and give you cheap or free travel - or is it doing more harm than good behind the scenes? Money puts it to the test.
Shortcuts to own a home
Innovative ideas with a focus on low costs and sustainability could help solve the housing crunch.