The Dot Update - November 2022
Welcome to this edition of the Dot Update..
Negative Gearing Costs Explode
Negative gearing costs for the Federal Government are set to explode on the back of rising interest rates.
While last year figures from the Parliamentary Budget Office put the cost of negative gearing at about $3.8 billion, predictions are it will hit around $8 billion in the next financial year.
Analysts predict negative gearing deductions by investors, which is the tax offset that accounts for the gap between how much an investment property costs and how much it earns, will continue to rise as the Reserve Bank of Australia continues to put up interest rates in an effort to slow inflation.
Since May this year interest rates have risen by 2.75% and are predicted to continue rising.
The quandary for the Federal Government is whether to do something to address the rising negative gearing costs or just accept them as removing the scheme could result in investors leaving the private market leading to an even worse rental crisis.
Renters Bidding For Tenancies
Renting a property has become like buying at auction, with potential tenants being forced to “bid” higher rents to secure a home amid a severe shortage of rental homes.
Tenants’ Union chief executive Leo Patterson Ross says tenants feel they are being forced to offer more than an advertised rental price or to agree to pay a bulk sum upfront in an effort to sign up a home.
“At the moment as things get very tight, many people are looking for a property and there is only a limited number available, which means the incentive that people feel to make a successful application grows,” he says.
Patterson Ross says it is distressing and frustrating for would-be tenants to be told they have to come up with even more money than advertised to be in with a chance to secure a rental property.
He says some property managers are calling potential tenants to see if they are wanting to offer above the asking rent.
New Annual property Tax Less Than Stamp Duty
A first-home buyer who opts to pay ongoing property tax rather than one-off stamp duty could be better off financially, according to modelling by NSW Treasury.
It shows it will take a first-home buyer, who opts to pay an annual property fee on a $1.5 million apartment, 63 years before they end up paying the same amount they would have to pay for stamp duty upfront.
For a house which costs $1 million it will 23 years.
The modelling was done ahead of a proposal by the NSW government to introduce an optional property tax instead of stamp duty in January.
The policy is intended to help first-home buyers get into the property market sooner, without the costly upfront stamp duty payment.
NSW Treasurer Matt Kean says it makes sense for many first-home buyers to choose a smaller annual fee for a limited period while they own the property, rather than stamp duty paid upfront in a lump sum.
The drawback with choosing the property tax option is that it can affect borrowing capacity. The bank will note this expense as ongoing when applying for a home loan and can adversely impact the borrowing power vs paying stamp duty upfront.
As always, we hope you enjoyed reading the blog and should you have any questions, please feel free to email Connecting@dotfinancial.com.au or you can call us on 1300 000 DOT (368).