Majority of Rental Owners Negatively Geared
Recent statistics released by the Australian Taxation Office for the 2009/10 financial year reveal that nearly two-thirds of rental property owners are negatively geared. There were a total of 1,751,679 individuals receiving rental income, with 37% making a profit ($0 or more) and the remaining 63% recording a loss on their rental properties.
The average weekly loss reported is $176, however, interestingly the average loss for rental owners on $6000 or less income per year was $207 per week. It is noteworthy that there is little benefit from negative gearing for rental owners in this group. The chances are many of them are self-funded retirees, but in any case, with little to no annual income there is little in the way of the tax benefit which negative gearing allows against annual income. The rental owners in this group will be hoping for capital gains in the value of their properties to off-set their losses, however in a soft market this is not guaranteed.
Another worrying trend is there are 825,284 rental property owners (47%), who are negatively geared and earning $80,000 per year or less. As with the lower income group mentioned earlier, this group will be hoping for capital gains and subsequent positive cash-flow on their properties as there is typically less need to offset tax than in the higher-income bracket. In the end, as negative gearing means that the property owner needs to have ready cash-flow to meet the short-fall, lower-income earners may find themselves in danger of being over-exposed.
In the higher income bracket, 26% of rental property owners are negatively geared and are earning $80,000 or more per year. This group are on average losing $232 per week or $12,082 per year.
The positive news is the 37% of rental property owners who are turning over a profit on their rentals. On average this group is making $160 per week, a good figure when compared to the average loss of $172 per week and a welcome note for investors who may not be enjoying capital gains in the current market.
These statistics highlight that most Australian property investors are currently negatively geared. Given the current property market conditions, rental owners are not able to rely on capital gains to off-set negative gearing. While they may hope for a boost to the rental market to propel them to positive gearing, lower income earners need to be careful not to become over-exposed so that they are not forced to sell property during a soft market.