Negative gearing: Stopping the abuse

One finance specialist has called for a more rationalised approach to negative gearing that prevents investors misusing the system

Negative gearing: Stopping the abuse



While negative gearing can benefit all Australian property owners, efforts should be made to limit its abuse and quell pressure on rapidly growing prices.

Richard Wellsmore, manager at financial consultancy and mortgage brokerage Futurity, is pushing for a balanced, rationalised strategy that still permits negative gearing while imposing some limits on the practice.

“I actually feel that negative gearing is a legitimate and effective means through which people of average income can acquire wealth for later in life,” he told Australian Broker.

However, the current negative gearing structure leaves it open for abuse, he said, with certain investors now owning an excessive number of homes.

Rather than doing nothing like the Liberals or wanting to abolish negative gearing completely like Labor, it should be rationalised, Wellsmore said.

“Rationalised relates to ensuring it is open to all rather than the wealthy few. Rationalised means that it is not abused where greed comes into play. It is this greed that is a prime driver in the increase in property prices.”

He suggested that negative gearing be limited to a maximum of five investment properties per person. This will have a more moderate rate effect on the housing market by adding rental properties and enabling ordinary Australians to accumulate wealth.

“There is a need for somebody to fund the property market and provide rental properties for those who are not yet ready to buy their own home,” he said.

Instead of an intermittent tap on property investment, a more moderate constant initiative would be far more productive, Wellsmore noted.

“The reality is that political parties need to look long term and act on a bipartisan level if the economy is really going to be managed on a permanent basis. This would benefit everyone.”

Current approaches such as the Australian Prudential Regulation Authority’s (APRA’s) crackdown on interest-only loans were tackling the problem in the wrong manner, he added. Instead, people should be educated on how to effectively borrow and repay money.

“We, mortgage brokers, if we are worth our salt, are an integral part of this process.”

“The reality is constructive long-term planning and education will control the property market far more effectively than these knee jerk reactions that have little effect other than to widen the economic and social gap that already exists in our country.”

With APRA’s current focus on interest-only lending, the ability to invest properly would be taken away from ordinary Australians but not from the very wealthy who could continue to abuse these negative gearing tax benefits.

“Rather they will continue to use what I would call a greed approach to fuel the property market. If APRA wants to control things more, at least make it a level playing field.”

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