Negative Gearing

Negative gearing is in the news. The ALP have a new policy on it and the government it seems is going to change their policy on it as well.

What is it?

It is the lubricious position of having to pay more out in interest than you are getting in rent, dividends etc.
So for example say you are paying $100 in interest each week and you are getting only  $80 in rent then you are negatively gearing. You are having to pay money to have the investment property.The rent is not paying back any of the loan!

This is marketed to people over the telephone by saying how you can reduce your tax! Not how you can gain extra income.

Thus people who use negative gearing are assuming a capital gain on the property in the medium term which offsets the low rents.

When the RBA gets worried about investors in the housing sector then we should also.

Is the ALP policy supportable.

To an extent it is. Limiting it to new homes would increase supply and you would expect put existing houses on the market for potential home-owners to buy.

Negative gearing could not just n\be limited to housing, it would have to be applied across the board.

One thing for sure Bill Shorten is being quite courageous!

Update:

I should have added you need to making decent making to negatively gear otherwise you would not get a loan. If you are not on a reasonable income then you have either a guarantor for your loan or you have a number of properties of which at least one you had to put up as security.

A useful article. THIS is even better,The KOUK is very helpful as well.