Investment properties in Australia are like pubic hairs; every cunt has one.
“Negative gearing”. Which, in plain English, is the ability to offset an operating loss against a salaried income. So, say I’m losing $3,000 a year paying the interest on the loan and doing maintenance on my 2nd property, I can offset this against my income tax bill.
Brilliant little wheeze in the years where the prices are only going up as the tenant is helping to pay off your loan which is becoming smaller comparative to the value of the place. Not so smart when prices are flat or reducing as you’re making a loss on revenue and losing capital.
Personally, I don’t like making a loss in either department, so it’s not for me in any circumstances. As a good friend says who offers investment advice;
Rule #1: don’t lose money.
Rule #2: see rule #1.
Since I arrived here, I got the impression that “owning a portfolio” of properties (inverted commas correctly-placed; they don’t own anything except debt in most cases and portfolio is such a bollocks collective noun for 3 shitty flats) was absolutely widespread. Everyone has one.
Today, I discovered quite how endemic this propertied class is. 1,751,679 of the population of Australia, or about 7.5%.
And the funniest thing is that they are mainly doing really badly at their hobby of being a landlord. The route to untold wealth seemed to run out of road about 3 years ago according to the stats; they’ve been losing money on the rent each year anyway and, to add insult to injury, the capital growth has been non-existent, they’ve gone backwards in many cases. And that was the only reason they got into it in the first place. Oops.
In another article, it would seem that property sales are at their lowest level since 1994. Yet unemployment is practically non-existent and interest rates are below the historical mean. What’s going on?
Earlier in the year, Bardon suggested that I might be a bit of a deflationista. He’s partly correct; I can see deflation occurring in assets such as house prices but inflation in luxury items such as food and medical insurance.
The term for this is biflation and it’s a bit of a tricky nut to crack if you’re a central bank trying to defeat it.
My suggestion is that, once you’ve off-loaded any declining assets before we get too far into the two-decade long period of falling prices, stock up on popcorn, find a suitably annoying “portfolio-owning” subject to view and enjoy the show as they come to terms with a very mean reversion……