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(08) 9453 8888

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Advantages and Disadvantages to Negative Gearing

If you are looking for home loans in Perth to invest in property or purchase a new home, you are probably affected by negative gearing. Negative gearing is what happens when an investor originally loses money because the costs, including interest, of the property are greater than the home loan he or she took out to get that certain property. However, this can also save the investor money on taxes, thereby lessening the impact. This phenomenon has both pros and cons to it, but affects the Perth market either way.

The Positive Side

The advantages of negative gearing exist mostly for the investor who is dealing with property. Because losses from investing are reduced from taxable income, taxes paid are less. While there is a total net loss for a while, this can help offset that loss until the investment grows and becomes greater than what was originally put into it.

Incidentally, this relationship with taxes is only in place in a handful of countries in the world, Australia being one. Some experts and mortgage brokers in Perth argue that it keeps the market fresh because people are more likely to invest if they can have their potential losses cushioned.

The Harmful Side

Although not totally proven, there are some critics who argue that negative gearing is a bad thing because it makes it harder for first time owners to buy a home. This is primarily because they have to compete with the offers of investors and few newcomers could compete with a seasoned and established investor. In addition, what is not being taxed has to be made up for by other earnings, ultimately costing the average taxpayer more, which is bad for the individual if he or she is not an investor.

Pros and Cons

Negative gearing takes place for all property investors but has a special debate in Australia due to its relationship with taxes. Some argue that it is beneficial for investors, while others hold the view that it harms first time home buyers and non-investing taxpayers.

Either way, it is an issue that will remain in debate for lawmakers and financial gurus alike. To find out more about this and what role we can play, call (08) 9472 9766. We can help you with your home, business and investment loans in Perth.

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Purely Finance Pty Ltd - Australian Credit License 384337

Purely Finance is an accredited member of the Professional Lenders Association Network Australia (PLAN), a full member of the Mortgage and Finance Association of Australia (MFAA) and a full member of the Australian Financial Complaints Authority (AFCA).

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