Federal Treasurer Josh Frydenberg has received a confidential Treasury warning that negatively geared property investors may start dumping properties making the downturn in the housing market worse. Household debt to disposable income has risen by a whopping 200% in the 28 years to 2016 but of equal concern is the threat of rising unemployment.
A large increase in unemployment could quickly see an increase in loan defaults, which lead banks to slow an already subdued flow of credit to the economy with property investors already feeling that pain. Where around two-thirds of housing investors are negatively geared (loan interest and expenses exceed rent collected), these investments are implicitly predicated on expectations of capital gain in the future. Now add the Labor threat of winding back negative gearing tax concessions and doubling down on capital gain taxes it is not unreasonable to anticipate many such investors, unable to refinance interest only loans expiring now and in the very near future will be forced to dump property they can no longer sustain putting increased downward pressure on prices.
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