cobran20

There is an echo in the ‘house’ - Must sell that loss making investment property.

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In the money advice section of the Adelaide Sunday Mail home lift-out today, is the following letter :

I have four investment properties which have grown in value considerably over the last five years. I brought one prior to 1985 so there is no capital gains tax problem but the other three have a significant capital gain. With interest rates getting very high I don’t expect they will gain much value in the next few years and as I am 58 and intend to retire from any job in a few years, I am thinking of selling them and setting up an allocated pension for when I do retire. Should I sell them all at once or will I pay less tax if I sold one each year for three years?

Investors around the country is echoing the same concerns as house price appreciation slams into reverse gear. Everyone is heading for the exits and all at the same time.

The Brisbane Times yesterday reported a surge of 10,000 more homes on the market now, than in the same period last year. In percentage terms, there is 52.9 percent more listings than a year ago. The Sunday Mail in Adelaide reported today that the number of homes for sale in Adelaide over the last four weeks is 14,440 up 20 percent over the same period last year. Four more, when the author of the letter above, places his properties on the market.

But why is there an urgency to sell? Could the answer lie with negative gearing?

» Brisbane property sales in limbo - Brisbane Times, 14th November 2010

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I wonder if the people who buy lossmaking houses with the goal of selling them to make a profit would buy shares in a company that is losing money, with a view to selling those same shares at a profit a few years later?

Oh wait, noone in their right mind would do that :)

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I wonder if the people who buy lossmaking houses with the goal of selling them to make a profit would buy shares in a company that is losing money, with a view to selling those same shares at a profit a few years later?

Oh wait, noone in their right mind would do that :)

If they were involved in the dotcom bubble, the answer would be yes.

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I wonder if the people who buy lossmaking houses with the goal of selling them to make a profit would buy shares in a company that is losing money, with a view to selling those same shares at a profit a few years later?

Oh wait, noone in their right mind would do that :)

plenty of people leverage into shares, choosing low yielding, high cap gain stocks. hence they make a loss each year with an expectation of future gains with less tax.

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Not a good photo of Ms Baker - the woman looks unnaturally wide eyed.

Put it this way, if my kids had that expression, I'd be very concerned.

Edited by Chimerica

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What an excellent story!

Maybe this is the beginning of a new era when people will actually THINK instead of just assuming that something will do because it did?

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If they were involved in the dotcom bubble, the answer would be yes.

plenty of people leverage into shares, choosing low yielding, high cap gain stocks. hence they make a loss each year with an expectation of future gains with less tax.

Ok, ok, I stand corrected, there's insane sheep in every investment class :)

I was thinking more that a long-term business (say, Telstra or CBA) making a loss each year isn't something good to invest in. New businesses are a different ball game, but there's no real parallel in real estate to a freshly minted startup neck deep in debt that won't make a profit for a few years until the startup debts are paid and the revenue is up. Houses should earn their maximum potential (ie, market rent) from the day they are rented out.

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Ok, ok, I stand corrected, there's insane sheep in every investment class :)

I was thinking more that a long-term business (say, Telstra or CBA) making a loss each year isn't something good to invest in. New businesses are a different ball game, but there's no real parallel in real estate to a freshly minted startup neck deep in debt that won't make a profit for a few years until the startup debts are paid and the revenue is up. Houses should earn their maximum potential (ie, market rent) from the day they are rented out.

Actually I think your earlier comment illustrates what a risky game 1.2 million aussies are playing, and whilst I'm sure that others do this with shares, it's not nearly as many doing it, and the ones that are, I'm sure are far more aware of the risk they are taking. If those 1.2 million aussies looked at it in those terms, I'm sure the vast majority wouldn't have invested. Instead, I'm sure they all think it's a sure bet, and the fact they can get some tax back off the govt increases it's attractiveness out of all proportion to the sums involved.

I think newly built IPs are a reasonable comparison to a new business. There is a big upfront investment that can take some time to earn any income, so maybe it is reasonable that NG can be claimed in that situation for a few years. Trading existing stock doesn't generate anything like the same amount of economic activity.

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As an aside, why can't we make apartments look that nice these days? There'd be far less nimbysm if medium density looked like this.

We can if you want to spend a couple million on an apartment. While developers make their cash easily making little boxes of ticky tacky why would they bother?

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We can if you want to spend a couple million on an apartment. While developers make their cash easily making little boxes of ticky tacky why would they bother?

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I love that song Charles.

Its actually very clever, and has a message that is eternal.

It sums up so much of modern human life, and the unification of the masses.

Anybody who dares to be different, is treated accordingly.

And yet the natural world's beauty is its diversity.

Thanks for the stroll down memory lane.

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I love that song Charles.

Its actually very clever, and has a message that is eternal.

It sums up so much of modern human life, and the unification of the masses.

Anybody who dares to be different, is treated accordingly.

And yet the natural world's beauty is its diversity.

Thanks for the stroll down memory lane.

That's written quite beautifully Sol. Made me want to slip on a backpack and travel to some 3rd world jungle or desert again.

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Well, for me, there's a clanger dropped in the OP

What more, with the size of the bubble in Australia, the falls in property values could be quite substantial should the government decide not to interfere and let the bubble deflate this time round.

Who honestly thinks the government will decide not to interfere? Of course they will. Let the bubble deflate? Christ, that is as delusional as believing property doubles every 7 years.

The best one can hope is that government intervention may not "work" - but that will only encourage them to double down.

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So negative gearing blows our bubble bigger and makes the need to get out more intense when inevitably it does pop. Who would have thought. Here I was thinking Australia was different and its bubble could never pop becase we have negative gearing.:sadwalk:

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Well, for me, there's a clanger dropped in the OP

Who honestly thinks the government will decide not to interfere? Of course they will. Let the bubble deflate? Christ, that is as delusional as believing property doubles every 7 years.

The best one can hope is that government intervention may not "work" - but that will only encourage them to double down.

yep, you got it. no way are they going to sit back and let prices drop without a fight. prices go up 20% its seen as a success, they drop 3% and people are in a state of sheer terror. i suppose the smart thing to do would be to try to figure out what they are going to do next and devise a way to profit from it.

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The best one can hope is that government intervention may not "work" - but that will only encourage them to double down.

Got any examples of interventions that have 'worked' (eg Japan, Nth America, Britain etc)?

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Got any examples of interventions that have 'worked' (eg Japan, Nth America, Britain etc)?

Australia October 2008. Resulted in 20-30% HPA the following year. Of course, this all depends on what one means by "worked" - if it is defined as prolonging the ponzi bubble, then on that score, it worked well. All too well.

No matter that it only exacerbated the existing problems, but Trev Beerslab doesn't give a sh*t - he wants his Equity Maaate and doesn't care how many families are destroyed in order to get it. .

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I think the FHOG boost just added a 'sub prime' component. Whilst bank CEOs on 8 figures have to go on world tours begging for money, you think it will work again? Hows the foreign funding looking if the govt has to throw the Titanic another $10-$20B lifeline?

I would hypothesise that if the FHOG boost recipients went to sell their house, allowing for stamp duty in and agent fees out, they'll take a loss. The 95% LVRS will have no equity to pyramid on.

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Got any examples of interventions that have 'worked' (eg Japan, Nth America, Britain etc)?

I do hold the view that governments can certainly pull levers to have certain asset classes inflate in value. There are limits to this of course, but I am not sure we have reached our limits yet.

There are not many examples of your bubbles that never popped but where governments truly put their shoulders to the wheel things can turn nasty.

I guess one bubble if you want to look at costs v price is the war on drugs resulting in illicit drugs selling well in excess of production costs for decades.

In theory the government could make the building of any new homes completely illegal maybe even buy back 5% of the stock (approx 160bn) and demolish it before our bubble has a chance to burst. These things would hopefully have them voted out, but sometimes I am not so sure? The Australian government could afford 160bn and it would put our private debt levels on an upward trajectory far worse than the governments 160bn but the banks would rake it in at least...

I could see in theory at least a country where in 20 years no one can afford their own shelter apart from those who bought prior to the criminalisation of adding an extra bedroom to the housing stock. Like addicts we would have to steal off the people who have them to eat and live in homes living 2 families to a home to be able to afford the rent and still being squeezed by landlords for every last drop of productivity we have in us. A roof after all is a necessity, similar to how drugs are to an addict. Clearly this is a ridiculous and farcical example and we would have unemployment and will have turned ourselves willingly into a third world country (living standards) directing everything we have got at keeping house prices on an upward trajectory.

I need to stress I am obviously not endorsing these things indeed it is farcical to suggest them at all but I fear our government is a farce in their own right and just about anything could happen when on the other end of the parliament you have just as many IP owners sitting... I guess I am just making the point government policy can create ridiculous outcomes if they really want to achieve those ends.

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I think the FHOG boost just added a 'sub prime' component. Whilst bank CEOs on 8 figures have to go on world tours begging for money, you think it will work again? Hows the foreign funding looking if the govt has to throw the Titanic another $10-$20B lifeline?

I would hypothesise that if the FHOG boost recipients went to sell their house, allowing for stamp duty in and agent fees out, they'll take a loss. The 95% LVRS will have no equity to pyramid on.

All true in that we would completely shag our economy. A 10 to 20bn lifeline isn't that much by world standards. Our private debt levels are gargantuan our public are not. This is why the government guarantee over funds is the only way we can really keep the funding flowing. If foreign bond holders were concerned with our sovereign debt it would not worry me that the gov were going to guarantee the banks. The trouble is the Aud government guarantee being removed on our bank funds saw their rates tick up, equally when the guarantee gets put on it will see their rates go back down.

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What levers have govts pulled that have permanently saved house bubbles? Some examples please anybody.

Sure you can throw $10B a year in booster grants etc but at some point the govts budget deficit will breach the magic 10% of GDP and Ralph Norris won't be raising a brass razoo on his world concert tour.

The fact is that Trev Beerslab is maxed out. The debt servicing is red line. Boosters may save a fall but it won't provide any upside. When the deficit gets to 15% what do the Heroine addicts get then?

Zirp? Theres Norris and that brass razoo again.

I can't find any sound permanent fixes that have worked globally so if anyone knows of any please share. Keynsian economics is a total f*cking failure, always has been.

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I think the FHOG boost just added a 'sub prime' component. Whilst bank CEOs on 8 figures have to go on world tours begging for money, you think it will work again? Hows the foreign funding looking if the govt has to throw the Titanic another $10-$20B lifeline?

I would hypothesise that if the FHOG boost recipients went to sell their house, allowing for stamp duty in and agent fees out, they'll take a loss. The 95% LVRS will have no equity to pyramid on.

Sorry, but you're picking the wrong argument with me. Will their inevitable intervention work? If there was any justice, it would fail spectacularly and Australia would be forced to deal with its imbalances. But in a world of equally f*cked-up imbalances, there's every chance the Aussie ponzi fumbles on and on until something seriously catastrophic happens - by which time it is too late for everybody.

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