THERE are many arguments for and against negative gearing.
For Hervey Bay optical dispenser and real estate agent Terry Johnson, negative gearing has allowed him to claim tax concessions on multiple negatively geared properties.
He said the tax concessions were a drawcard for people wanting to build a portfolio or boost their superannuation.
One of Mr Johnson's properties, a one-bedroom unit in Urangan acquired in 1998, is holiday leased to capacity throughout the year.
He said its proximity to facilities and the beach made it attractive to tenants.
The unit belongs to a larger, and well-established complex and requires minimal maintenance.
Property investment forms a significant component of Mr Johnson's superannuation and he attributes his success to hanging onto properties purchased in the down-cycle.
But there is a flipside to negative gearing.
Here is a breakdown from the experts:
- It is an incentive for people to enter the property market. Queensland University of Technology's Professor Chris Eves said this led to more rental properties for those who could not afford to buy.
- This incentive leads to more investors and therefore a need for more houses and construction jobs. The flow-on continues, as this stimulates the need for blinds, whitegoods, tiling, paving and furniture for new homes.
- It can be a way for people to prepare an income for retirement. House values increase over time and at some point, an investment that is negatively geared could come to make a profit (and be therefore "positively geared"). The option for retirees is to sell (and make a profit) or use rent as an income.
- Investors do not get much money back through tax deductions. For example, if a person bought a $500,000 house, they could pay $30,000 in interest on a home loan plus repairs and other costs. But if they're getting $500 a week in rent (or $26,000 a year), that is a total loss of only $4000.
- Although negative gearing can make housing investment more affordable for middle income earners, tax deductions and savings tend to benefit those higher income earners who can afford many homes.
- Griffith University's Professor Fabrizio Carmignani said it cost the federal budget billions of dollars.
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