Wednesday, July 02, 2003

Jesuits see the point

Key quote (“money shot”, in Hollywood patois):

the assets are not as important as the people we seek to serve


The investment property bubble

John Quiggin has a good post today, deconstructing who might be to blame, if and when the investment property bubble bursts.

If this time does indeed come, I’ll be personally far too preoccupied with gleefully rubbing my every conceivable body part – over the demise of so many greedy baby boomer fucks – to be able to blog about the subject in any rational or timely way. Hence, I thought I’d get in early with a few thoughts.

As you may have guessed, I don’t think anyone or anything should be held too much to blame, apart from the investors themselves. I am usually right up at the front of the queue when it comes to a good bank-bashing opportunity, but the banks were really just second-string players in the whole business. Apart from the vast volume of non-bank mortgage lending nowadays, banks also are not involved in the deposit bond industry. The latter has sprung up out of nowhere, with the express mission of taking the savings-building “hurt” out of borrower eligibility for a mortgage loan. In other words, deposit bond purveyors are a sub-species of the collection of commercial practices that I’d term “modern usury”.

To continue with this tangent just briefly, I think that it is important to point out that a usurious loan is a contract to be abhorred because is unfair on both the borrower (for obvious reasons) and the lender (for reasons of excessive risk). Usury is seldom a matter of interest rate percentile alone – for example, I would define spot-lending money to a gambler, so enabling them to gamble on credit, as usury per se.

Anyway, back to bust’n’blame. The CGT concession? Who knows? One curious bit of government tax policy – though rarely, if ever mentioned in this context – seems to blow right out of the water polite discussion of CGT rates: depreciation, at least as far as new investment properties are concerned.

Until today, about all I knew about this topic were the “Generous depreciation allowances” dot-point announcements on the “For Sale” signs – information that I’d always dismissed as typical real estate hyperbole; my reasonably in-depth knowledge of tax law tells me that, when it comes to depreciation rates, you just have to take what you’re given.

But no, it now turns out that I was wrong, and that a canny investor can in effect shop-around for tax-optimal depreciation, not in terms of rate, but in terms of starting amount. In today’s Australian, investment adviser, and also hands-on investor Hans Jakobi boasts, in reference to some Beenleigh (QLD) investment properties:

I also had a quantity survey report done on them to maximise my tax deductions. So, in one case, I paid $58,000 for the property and the QS report said I could depreciate $55,275 till June 2033 – so almost all of my purchase price is tax-deductible.

Good on you, Hans. If we could only now get your quantity surveyor mate to assess the rest of the nation's infrastructure. My prediction - in 2033, it will all be a slummy shithole, worth about $54.13 tops, as a job lot. But tomorrow's slums mean fatter deductions for today, eh?


Anna Fenech "Get real about your estates"
The Australian 2 July 2003
“Wealth” supplement

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