Glenn Stevens, Governor of the RBA made his strongest indication the reserve bank is worried by Australia’s surging property bubble in a prerecorded interview on Channel 7’s Sunrise.
He said “I think it is a mistake to assume that a, you know, riskless, easy, guaranteed way to prosperity is just to be leveraged up into property”, taking a direct swipe at property speculators.
“We can’t assume rates will remain low”.
This comes as the Commonwealth bank forecasts that interest rates will rise at four of the remaining nine board meetings this year.
ยป “This is where it all happens? Now, where does everyone sit?” – Peter Martin, 29th March 2010.
Glenn use to prep us for rising interest rates, telling us what was going to happen before they did.
Now his prep’ing us for the housing crash.
And there also seems to be growing support for abolishing negative gearing too!
negative gearing removes the effect of interest rate rises on investment property. so until it is removed, they are ineffective.
But will any political party have the balls to abolish negative gearing? I highly doubt it.
My preference would be to allow negative gearing only on the construction of new buildings. You can claim the negative gearing for 5 years from the time the property is complete, to offset the rents. After this time, the property is greater then 5 years old, and cannot be negatively geared, and the investor can move onto the next construction project.
Alternatively, we could abolish it all together. Instead, we could abolish capital gains tax on new developments only. So if you as an investor construct a new property, you cannot claim the negative gearing, but when you eventually dispose of the property, you don’t have to pay capital gains tax. This would encourage long term investment in property by investors (not people just flipping houses to make short term capital gains) as the capital gain would need to be significant enough over the space of time to offset the loss from negative gearing being abolished.
The average negative gearing amount I believe is about $10,000 per year per property. It is not unreasonable to think that a property would increase in value by $10,000 per year (if not $20,000 per year) even in a market that has cooled off. So whilst you might be making a loss from a negative gearing point of view, you make it back at the disposal of property as there is no CGT applying.
All I know my partner and I earn $120,000 per year between us, and have a $50,000 deposit, and cannot afford to buy an average property in Melbourne. When the average income no longer is able to purchase the average house, then you have a social problem. You also have a working population unwilling to have children as they need two mortgages to service debt, and a baby bonus program that lures 16 year old drop kicks in social housing and lifelong rentals to have children instead. Surely this must lower the long term IQ prospects of the Australian population? I guess its lucky we are importing all these smart Chinese people then!