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An end to negative gearing would be 'catastrophic': brokers

by Huntley Mitchell10 minute read
The Adviser

With all manner of talk at the moment on ways to cool an overheated investor market, any plans to tweak or remove negative gearing laws would be a disaster to their businesses say brokers.

Last Wednesday The Adviser reported on comments made by Saul Eslake, The Bank of America Merrill Lynch’s chief economist, who said a “simple answer” to the boom in investor lending would be for the government to scrap negative gearing without impacting those who already use it.

Mr Eslake joins a growing chorus of economists who believe negative gearing’s time may be up.

“If you grandfather it so that you’re not taking it away from the 15 per cent of the electorate who has it, then my view is: what’s the problem?” he said.

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The Adviser spoke to three brokers who deal primarily with investor clients. They were equally concerned about a possible government decision to scrap negative gearing in an attempt to limit the potential damage of a dangerously overheated investor market.

Inovayt mortgage advisor Jason Pogorelec said that ending negative gearing would be “catastrophic”.

“It would be a major issue, and for my level of business to continue to be sustainable, it would change things quite drastically,” he said.

Mr Pogorelec said negative gearing gives people the opportunity to get into the property market and afford an asset that gives them a return at a reduced price that fits in with their budget.

“If negative gearing was to go, the number of clients I would see taking that opportunity would dwindle purely from a cash flow perspective,” he said.

Brendan O’Reilly, a broker for M’OR Mortgage Options in Canberra, agreed that it would have a severe impact if negative gearing was cut.

“I think it would be a logistical nightmare to remove negative gearing, but I don’t think it will ever happen,” he said.

Mortgage Choice broker Theo Jansen said removing negative gearing would do more damage to the industry and his business.

“Too many people rely on the cash flow that negative gearing provides to sustain themselves and the property they have at the moment,” he said.

“If you remove it, people are just going to have to sell because they won’t be able to afford what they’ve got.”

As reported in last week’s story, one industry stalwart who believed the controversial tax concession was too entrenched to be removed was Dr Andrew Wilson, senior economist at the Domain Group.

“The argument against negative gearing is nonsense; sure they might tinker with (the laws) at the edges, but it’s here to say,” he told The Adviser.

[Related: Housing lobby backs negative gearing]

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