All Ords Report 28/08/2013

How important is negative gearing property to Australian investors? For most of us earning a wage and saving will not provide sufficient funds to afford a comfortable retirement. Many Australian Families have built wealth and secured their futures on the back of property investing using negative gearing to help them get ahead. However, at every election negative gearing property is raised in the media as the speculators posture over whether or not a future government should tinker with the current system. Can you imagine what would happen to our property market if the rules changed?

The real point of contention is that the Australian tax payer is forking out billions every year to support a system that was designed to encourage the construction of new property dwellings to add to supply, however, the statistics presented by Proper Australia suggest that only around eight per cent of the money funding the scheme is for new dwellings, the rest is for established property. So have governments past and present allowed a loophole to exist that tax payers are having to fork out for?

Data suggests that negative gearing, stamp duty and government grants contribute to housing price inflation and make it more difficult for first home buyers to enter the market. Now I’m not suggesting negative gearing be abolished, however, I am in favour of closing a loophole. Saul Eslake, former chief economist of ANZ bank recently said "An investor-driven recovery is much more likely to put upward pressure on prices and is less likely to induce new dwelling supply, which is the opposite of what the Reserve Bank wants and what the country needs".

So what do we expect in the market?

Last week our market moved lower to 5020 points before rebounding and closing at 5115 points, a higher close than the week prior. This week has confirmed last week as a higher trough which is a positive sign for the market given that uptrends unfold in a pattern of higher lows and higher highs. We are still expecting the market to rise over the coming months however we recommend caution given the upcoming federal election as this is likely to have some impact on the market.