Australia, you've been invited here on false pretences. Yes, I know you thought it was to celebrate your successes — and there have been many, many of them — but that's not why you're here.
You see, I'm worried about you. You've been hanging out with the wrong crowd, and they've been a bad influence. Those 'friends' sound like they care about you, but they don't. Some of those 'friends' are actively trying to bring you down. Others of them are stuck in the same rut themselves, and think they're helping you, but they're doing you harm.
So, Australia, this is an intervention
I've never been part of an intervention before. Not really, anyway. So I'm going to do it my way. It might not help — it probably won't — but I won't forgive myself if I don't at least try to help you before it's too late.
It's going to be lashings of truth, told because I genuinely want to help. I hope I can. I'm going to give it to you straight.
Here it is: the 'investment property' tidal wave is a sham.
No, not in the sense that it's an outright fraud, but in the sense that you're being sold a dream. And the dream might just become a nightmare. Of course you want to be rich. Of course you want to pay less tax. But just because a spruiker (and even your otherwise-responsible local accountant) says it's a good idea doesn't make it so.
When you get your first hit of an illicit drug, it's often free. That first time can apparently feel wonderful. That's the 'dream' phase. 'How can this possibly be wrong' you ask yourself. 'Man, this is awesome'. That's before the costs — the money, the addiction and the poor choices — set in.
Sorry, Australia, but you're hooked on the investment property drug now. And it's not going to be until you try to get off it that the pain will be clear.
How did we get here?
You're probably wondering how this all started. Was it that long ago you were just trying to find a way to get ahead? Sure, the stories of how much money your friends were making were alluring, but you just went to the accountant, right?
That's where the problem started. You can't remember whether you asked 'How can I pay less tax?' or whether your accountant started it, but in any event, it was the lure of paying less tax — getting one over the tax man — that started this sorry tale.
Oh, sure, it doesn't feel like a sorry tale yet. Sydney and Melbourne house prices, in particular, have increased 10% – 16% over the past year alone. But here's the sorry truth: wage increases are averaging less than 2%. How long do you think the music can keep playing when house prices are increasing at eight times the rate of wage price growth? If there was anything else in your life — bread, milk, petrol or, God forbid, beer — that was increasing at 15% a year, there'd be an outcry. But when it comes to house prices, Australia, you're an ostrich.
How are you feeling, Australia? Disbelief? Fear? Annoyance? Are you making excuses? Thinking how wrong I am?
I get it. You're looking at the early investors, right? They've done so well — and property prices always go up, right? It's a sure thing. You know, that's what the Yanks thought right up to the GFC. Many of them are still underwater on their mortgages seven years later… at least those who haven't already gone bankrupt.
And there are all of those tax deductions that your accountant offered. The problem is that he didn't tell you that you have to lose money to get them, did he? For every $1,000 of deductions you claim, you need to lose $3,000 if you're in the 30% tax bracket.
What if the music stops?
Now, you're okay if the music keeps playing. If the pusher keeps supplying the good stuff. But what happens when the music goes dead? When he starts making you pay higher and higher prices — or when the supply simply dries up. You'll be left high and dry, Australia.
Your addiction will leave you saddled with huge debts and a lifetime of repayments, if you're lucky. If you're unlucky, the bank manager (and maybe the sheriff) will come knocking. What will you do then, Australia? You'll be hooked and desperate, with no way out, just like your American cousins were in 2008.
Your accountant won't be able to save you, even if he was responsible for getting you hooked. Your friends who made their money will have already paid off their loans. Your bank manager will nod sympathetically as he hears your story, but won't be able to help.
And the rich? Oh they have better accountants. Their financial experts would never suggest borrowing 90% of the price of an overpriced asset — that's just crazy. The rich will be just fine — it's the teachers and taxi drivers who'll end up carrying the can.
