Geelong rental losses mount despite rent hikes to see rise in negative gearing

The proportion of Geelong rental homes making a loss is rising, as new modelling indicates spiralling mortgage costs is giving rise to more people negative gearing. SEARCH YOUR SUBURB

More Geelong rental home owners paying more in interest payments than earning rent, new modelling shows. Picture: Alan Barber

The number of property investors making a loss on their Geelong rental home is rising despite the big jump in weekly rents.

Exclusive modelling from PropTrack based on recently purchased investment properties indicates the proportion of investors claiming losses on their rental homes had increased since 2022, when interest rates were at a record low.

Typical losses were mounting too as the cost to cover mortgage payments ballooned as interest rates jumped at a record pace over the past 21 months.

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The estimates indicate 77 per cent of investors that recently bought rental homes in Geelong would be negatively geared in 2024, rising from 73 per cent in 2022.

But the proportion negatively geared is higher than that in two-thirds of Geelong suburbs.

4 Anderson St, East Geelong, is available to rent for $450 a week. New analysis indicate most recently acquired investment properties were making a loss.

Among the suburbs where the modelling estimates the highest proportion of rental homes were negatively geared were East Geelong, Newtown, Hamlyn Heights and Bell Post Hill, with more than 90 per cent making a loss.

The typical loss increased more than $800 a year to about $7400.

PropTrack economist Angus Moore said between 60 and 70 per cent of investors were typically negatively geared, though the Australian Taxation Office figures show that less than half were in 2021 as a consequence of record low interest rates.

A property is negatively geared when an investment property’s rental income is less than the interest repayments and other property-related expenses, such as council and water rates and compliance costs.

18 Glengate St, Hamlyn Heights, is available to rent for $540 a week.

“What it means is that your rental loss reduces your taxable income in the same way that you would claim expenses for your work uniform or for working from home,” Mr Moore said.

“You don’t necessarily get the money back, but it reduces the amount of your taxable income, so you end up owing less tax.”

Weekly rents have ballooned in the past few years, after a moratorium during the Covid pandemic, but haven’t kept pace with rising mortgage costs, as interest rates rose from close to 2 per cent to around 6.5 per cent on average.

“For a new investor it means that costs have just increased substantially more than rents,” Mr Moore said.

“And so we’re seeing both more people making losses on their rental properties, and the typical magnitude of those losses having increased as well.”

5 Vista Rd, Newtown, is available to rent for $795 a week.

Negative gearing has become a target for debate amid another housing and rental crisis across the nation.

Mr Moore said there was little evidence negative gearing had a huge impact on home prices.

“Fundamentally the problem we have in rental markets at the moment is there just aren’t enough homes,” Mr Moore said.

“We can change tax settings, but fundamentally the only way to solve that is to build more (homes). That is consistently the only way to get more rental properties into the market.”

The rising costs is having an impact on investors and the amount of homes available for the rental market, Harcourts North Geelong head of property management Helena Fantela said.

13 Hadley St, Charlemont, is available to rent for $520 a week. Figures indicate the lowest proportion of investors would be making a loss on their rental property in Charlemont, compared to other Geelong suburbs.

Many mum and dad investors were fleeing the market unable to cover their rising costs.

“Over the past 18 months we’ve lost about 12 per cent of our property management portfolio,” Ms Fantela said.

“And owners are just telling us that they can’t afford to keep these properties with the land tax, the interest rates and compliance costs. And the rents just aren’t keeping up with the expenses.”

Ms Fantela said the rental market vacancy rate was getting tighter as a result.

“Most of our clients are mum and dad investors. When people say ‘landlord’ they think they’ve got multiple properties. Most of our owners are mums and dad and have done it for their children, or their retirement and they can just can’t afford it at the moment.”

175 Coastside Dr, Armstrong Creek, is available to rent for $490 a week.

Buyer’s advocate Cate Bakos said the federal government wasn’t “giving money away” through this tax deduction.

“All (they’re) doing is recognising that (investors) are running at a loss and its offsetting the tax they have to pay,” she said.

“The reason negative gearing exists is because our government only provides 9 per cent of housing to renters and 91 per cent is reliant on private investors.

“Without private investors, were in a lot of trouble because the government would need to build 10 times the number of properties they have currently, immediately. That can’t happen.”

Originally published as Geelong rental losses mount despite rent hikes to see rise in negative gearing