In a time where monetary policy is in a tightening cycle, the increased interest rates will have a more profound effect on owner-occupiers than investors. We bank roll investors through negative gearing, softening the impact of interest rate rises for them. In effect, an investor on the top marginal tax rate will have the extra costs in interest re-payments incurred by a rise, subsidised by the taxpayer at 45%. If only that were true for Australian families and first-home buyers. We encourage investors to gear themselves such that they make losses. This, it is argued, occurs at the expense of tax payers and first-home buyers.

The disincentives that dampened enthusiasm for investment properties are being eroded. For instance, once upon a time, investment loans were charged at a premium of 1%+ to the standard variable rate. Not any more: it is easy for an investor to commit to a loan on the same rate, if not cheaper, than your average home owner. Investors, by stealth, have received a free kick in lower interest rates.

I question whether capital gains tax (CGT) offers any appreciable disincentive to investors. After all, CGT is only applied after an asset is sold. Investors in property also take a long term view and won’t include CGT when calculating the rolling return on their investment (ROI). Besides, those that speculate on property will often sell properties which have experienced a capital gain only when their income is very low or when they have other financial losses to off-set their gains against.

Rents are on the rise and the investment fundamentals are starting to return for those investors looking at property. Much of the upside in the share market has already been realised and many investors will be diversifying now. According to ABS data, the value of investment lending is 15% more now than it was for the same time last year. We are already, in certain sections of the property market, experiencing an investor-led recovery.

This is will not be good news for would-be home owners. This prompts us to question whether governments should look seriously at overhauling negative gearing laws.

Michael McNamara
michael.mcnamara@apm.com.au

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Brisbane recorded a 60% clearance rate and an auction volume of 20 this week. 92 properties were auctioned last week and the clearance rate was 49%. This week of last year 154 properties went to auction and the clearance rate was 47%.

This week, the Gold Coast saw one auction.

Sydney recorded the most expensive auction this week. The four bedroom house located at 79 Manning Rd Woollahra sold at auction on Saturday for $3.15 million by Bradfield & Prichard Double Bay.

The second most expensive auction this week was sold in Melbourne by Beaches Real Estate. The five bedroom house at 15 Ozone Av Beaumaris sold for $903,000.

Adelaide was home to the most affordable auction this week. 2 Chilmark St, Elizabeth Vale was sold for $120,000 by Smallacombe Norwood.