Negative gearing as a government stimulous is building the nation and creating wealth for Australia. What should taxpayers who have decided to buy an investment property know before signing a contract?
The property market in Australia
Negative gearing helps the nation by creating work for people in the wider property industry.
Real Estate Agents
At the same time, money in the property development cycle really does cycle around in the form of local government taxes and charges, GST on everything and tax paid by everyone in the industry.
It seems that the government is intent on creating national growth through demand stimulated by immigration and opening up ownership of most Australian real estate to overseas buyers.
Australia has little else going for it at the moment. Manufacturing is on the slide and mining exports, while high in volume, are suffering from low commodity prices which prevents expansion in the mining industry. In the past jobs were in infrastructure building and operations. In 2015, jobs are in operations with bare minimum level staff retained.
The government has intentionally continued promoting negative gearing as a stimulus measure despite the difficulty it creates for first home buyers who compete with tax minimisation investors for limited stock.
There is a seller's market in that demand exceeds supply. Asian buyers are prominent in Sydney and Melbourne where foreign owners, people supported by foreigners like parents and Chinese industrialists looking to earn the right to move to Australia, seek to store their wealth in Australian real estate.
The Reserve Bank has expressed alarm at property prices and is managing the cash rate to stimulate growth, encourage property development to sustain the economy and to maintain the stability of the banking sector.
Australia needs to grow to provide work for its people. It is the reality that fuels investment in real estate.
For the "pay as you earn" taxpayer, with little else to stop personal tax increases due to bracket creep, negative gearing means that there are massive tax minimisation opportunities from property ownership, while the miniscule deductions for work clothing and self education are ineffective.
The property industry is keeping Australia working while other countries like Greece are in debt, cannot support government and private infrastructure and need EU subsidies.
How should a PAYE Australian approach using negative gearing to reduce tax and acquire an asset?We asked Jeff Grochowski, the founder of a well known property location service, to share some of his observations with Viw Magazine.
"Most people looking who wish to negative gear property find their property through their local agent or online. Some people go to seminars and some go to their accountant or financial advisor for advice."
"Generally speaking, buying real estate online is the worst thing you can do as by the time you have found a suitable property you are often up for massive price increases. Then there is the issue of competition. "
"Seminars are geared to excite people and to loose control in some way by letting their guard down. People have been known to buy because they are hyped up."
"Often a spruiker has an interest in selling a property with a personal affiliation. This of course means that investors are buying what they want them to buy and it’s not always what they should buy."
"Some Accountants and financial advisors offer property for sale, usually this is via third party service provider. Often a third party commissions an accountant or adviser for introducing buyers. Usually the service provider is the developer or property spruiker."
"The client thinks they are getting good deal because they believe that their accountant or financial advisor knows everything about financial matters and will look after them. Often this is not the case."
"Sadly, clients mistakenly think that "their" accountant and financial advisor will have no personal interest in selling them any particular real estate. They are perceived as just giving financial advice and trying to assist them strictly from a financial point of view and definitely not as a sleazy sales person."
"Always ask if your accountant or financial advisor is being remunerated in the event you buy a property from anyone they introduce you too. If they are, ask yourself "Am I getting the right advice?""
"Traditionally Sydney is five years ahead of Melbourne in terms of property prices. This year, the median house price in Sydney reach $1 million. That could translate to Melbourne catching in the next five years."
"Property rental prices in Melbourne are possibly undervalued. Variations in return figures of 6% and 4% mean that we have to advise our clients who have decided to buy an investment property on what specific properties will maximise their rental income in the next few years."
"The key observations this week are that interest rates are not going up, banks are still lending for property investment purposes, the share market has gone down and property prices generally continue to rise around Australia."
"Accrue Real Estate provides targeted information to our purchase clients as we reach an understanding of their specific situation, their aims and what properties currently in the off market property industry would suit them"
Real Estate Property Suggestions
This week, Victoria Police detectives have offered a useful reminder to any property owner looking for a tenants
"Frankston Crime Investigation Unit detectives are reminding the public to be mindful and to conduct due diligence checks when renting out property.
The call comes after police have been involved in three recent evictions of the Darkside Motorcycle Club, which is associated with the Hells Angels, from commercial premises in Seaford.
A thorough vetting of potential tenants could prevent future heartache for property owners.
- Always check potential tenant’s credentials.
- Sight and check all documentation to ensure that it is genuine. If tenant’s have copies of documents ensure that they are certified.
- Meet potential tenants a few times before renting the property and ask them questions. If claims made by the potential tenant conflict with the evidence on hand ask further questions.
- Do some research and check the applicants name through Google and on social media. Check application addresses and information on Google maps.
A little bit of investigation may prevent lost income and disruption in the future."
To learn more about negative gearing and points to consider when choosing an appropriate property contact Accrue Real Estate.
Phone 03 9696 0085
Email firstname.lastname@example.org - Send an email and request a call back to anywhere in Australia.
Accrue Real Estate are not property spruikers, nor are they a wealth creation company. They simply source, negotiate and introduce property to their clients after they have decided on purchasing a property for investment purposes.
*Another article published in collaboration with MultiViw