Reliance on negative gearing is "outdated"

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Relying solely or heavily on negative gearing to make property investments worthwhile has been labelled an “outdated” investment strategy.

While negative gearing and its future in Australia has been the topic of intense discussion in the lead up to the impending Federal Election, one member of the property investment industry believes it’s time for people to reconsider their use of the tax break.

“It’s an outdated way of investing to focus solely on negative gearing to build a property portfolio,” Debra Beck-Mewing, founder and principal consultant of  Crave Property Advisory, said.

“I remember 10 or 12 years ago more creative strategies were starting to come out and people were starting to understand the benefits of investing property that would actually provide a return. I think that’s starting to gain traction again and that’s why I think negative gearing is a bit outdated.”

While strong capital growth seen in some Australian markets recently may have resulted in some investors turning to negative gearing as their properties gain value with little outside help, Beck-Mewing said many investors are too often steered towards negative gearing without considering if it’s the best option for them.

“From what I see people that don’t invest in property very often rely on what they read and hear form the loudest voices and the negative gearing message seems to be top of mind,” She said.

“You particularly see it with a lot of project marketers or people pushing brand new properties. They’ll just push negative gearing along with depreciation, [negative gearing] just seems to have been completely coupled with investing by some as the only way to go.”

“Individuals who are interested in property have end up going with a company that might only have one or two strategies, where as it should be about what suits the individual. Not only from a financial perspective, but also what are their interests and goals and how much do they want to get involved?

“Some people don’t want any fuss, they want to buy something and set and forgot, but a lot of people are actually happy to do a bit of work cleaning a place up and take the capital growth by improving a property.”

While a strategy, be it a negatively geared portfolio or anything else, may currently be working for an investor, Beck-Mewing said some investors may be costing themselves by not having a look at other options that have presented themselves in recent times.

In particular Beck-Mewing said many investors may have recently been delivered a huge windfall unbeknown to them due to widespread rezoning.

“Governments at the moment right across the country are rezoning and putting a lot of effort into infrastructure, which are having a huge impact on existing properties.

“A lot of people don’t even realise that their property has been rezoned or the density limits have been changed and they could easily be sitting on gold mine and not even know it.

“That could give the opportunity for a knockdown and rebuild or small development that could be more profitable than just holding on to the property as it is.”

Checking to see if a property has been rezoned could also allow people to act before they see the value of their investments drop.

“If the area’s been rezoned so a new road or train line can go through your backyard, then that’s something you want to know about.

“In that situation their might be the opportunity for people to approach their neighbours and see if they would consider selling as a package.”

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