01 Jun The 'buzz words' are just that – words! – Helen Collier-Kogtevs
There are plenty of buzzwords that get thrown around in the property industry, and two of the big ones are negative gearing and concessional capital gains tax. Some are claiming that both are the case of booming property prices in Melbourne and Sydney. Federal Treasurer Scott Morrison in his Budget finally put to rest any talk about fiddling with negative gearing but is that the end of the debate. Helen Collier-Kogtevs from Real Wealth Australia has her say.
Kevin: There’s no doubt, is there, that property prices continue to grow, and we’re hearing all the time – and we’ve spoken about it in this show – about how unaffordable property is in Australia, now recognized as one of the most unaffordable countries in the world to buy a property. So, what’s driving property prices? Can we blame it on things like negative gearing?
I want to talk now to Helen Collier-Kogtevs from Real Wealth Australia, who’s written a lot about this, I know has been thinking a lot about it, and no doubt talks to a lot of people about it.
Helen, thank you very much for joining us in the show.
Helen: Thanks, Kevin.
Kevin: Is negative gearing the big baddie, the one that’s driving property prices up?
Helen: I don’t think so, Kevin. I think the whole negative gearing saga is over-stated, and I really feel that it’s not all bad news for investors. No one goes into property investing to negatively gear or to save on tax. We invest in property to grow long term wealth. So, I really feel that right now, this whole topic of negative gearing is over-stated.
Kevin: I quite often wonder if the taxation benefits associated with negative gearing, if they weren’t there, would we see as many investors in the market?
Helen: That’s possible initially, but I think what will eventually happen if that was to occur is that rents would increase. As investors, negative gearing is a fundamental part of investing in this country, and it’s been around for a very long time. If negative gearing was removed entirely, then I’d imagine that rents would go up.
The government did do that some years ago when they tried to remove negative gearing, and rents went up. In my opinion, the same thing would happen again.
Kevin: There are many countries around the world where buying property is not so much about making a profit or having a nest egg at the end of the day; it’s actually having somewhere to live. Do you think our focus on profit from property has driven prices the way they are, Helen?
Helen: I think there’s probably some truth in that, but the reality is the statistics and the numbers and all the data shows us that long term, property has grown and has proven to a lovely little nest egg for the long term when done well.
Kevin: There’s no doubt that the prices in Sydney and Melbourne continue to climb, as I said at the outset. So, what’s driving the price growth in Australia, Helen?
Helen: I think one of the major factors for Melbourne and Sydney booming are the Chinese investors who are coming in. They’re purchasing property simply because in their country, in China, they’re only entitled to purchase one investment property. They’re cashed up and looking to put their money somewhere.
Melbourne and Sydney by comparison to their country are relatively cheap, so they can afford to actually outbid the locals. They’re coming in with all the cash and they’re leaving them vacant because they can afford to.
So, it’s actually causing a boom, as well as the 200,000 migrants coming into the country – roughly around 100,000 for Melbourne and 100,000 for Sydney – and they too are wanting to purchase the property while they’re here, as well.
Kevin: In the recent federal government Budget, there were some penalties going to be applied for investors who do just that – buy investment properties from overseas and then leave them vacant.
Do you think that’s going to put a bit of a dampener on that, or do you think it’ll have no effect?
Helen: I think it will have a dampener. I really like that idea. I feel that limiting foreign buyers – or Chinese buyers specifically – is a good sign for us locals. As for how much of an impact it will have, I guess we’ll just wait and see. But in my opinion, I think that it will have some sort of an impact in the short term.
Kevin: The reality, though – and we hear both sides of government talking about wanting to make houses more affordable for people – is that unless they can actually put a stop on house price growth or even have prices go backwards, there’s not a lot they can do about affordability, is there?
The way it is now, if prices were to fall back – so it were more affordable – there’d be a huge outcry from all those who currently own properties.
Helen: Exactly right. And you have to consider that most Australians, when they do buy a property, it’s their own home and they leverage and use their own home in their retirement. So, to then not have it be worth anything at the beginning of their retirement phase, that would have a devastating effect on many Australians.
I particularly do like the effort that the government is going to in order to help young Australians purchase a property using their super, however I question the practicality of it. $15,000 to salary sacrifice, I don’t know too many young people who could afford to sacrifice that kind of money per year unless they’re living with mom and dad or sharing, etc.
But I like the concept; I just don’t think it’s all that practical.
Kevin: Yes, it’s a very small incentive to save when we don’t have a history of being great savers, and the reality is $15,000 over a few years is not going to help you much with the way prices are growing right now to actually build that deposit.
Helen: Exactly right, Kevin.
Kevin: So, bottom line, what do you think? What does this all mean for investors? Wrap it up for me, Helen.
Helen: With the new Budget in place and a couple of changes that have been made to negative gearing, in all, I really don’t feel it will have a big impact for investors. If investors are negatively geared and because of a couple of the changes are suffering a little bit more from a cash flow perspective, a couple of things they’ll need to do is maybe look at purchasing a cash flow property rather than a growth negatively geared property. So, they might need to switch their portfolio around.
They might need to just literally tighten up their budgets a little bit. Pulling back on your spending in order to sustain the property in the long run might be also something people need to consider, but realistically with this latest Budget, I don’t think there’s a lot to see here, really.
Kevin: Helen, great talking to you, thank you very much for your insight there. Helen Collier-Kogtevs from RealWealthAustralia.com.au.
Helen, once again, great talking to you and t hanks for your time.
Helen: Thank you, Kevin.