Lot of talk lately about shorting, etc. In property it is said...

Lot of talk lately about shorting, etc. In property it is said that Renters are short, expecting prices to go down. Homebuyers for P.P.O.R. are neutral and investors are long expecting prices to go up.
There are times when investors sell and wait, or stay away from the market but there are some real risks in shorting Australian property.
The transaction costs are high, to sell costs 3% of selling price. Then to buy back in you pay stamp duty.
If you are an investors you cover these costs and they are tax deductable.

So lets look at a couple of situations
You sell your PPOR for $430k your selling cost is $10k
So you have $420k assuming no loan. Assuming you have self discipline to invest all proceeds and not take a little reward.
You have to live somewhere, so now you pay around $20k in year one for rent.
The money you have invested is now subject to income tax so if you still work the interest is added onto your income and taxed.
Lets just say the market goes up a modest 5% so year one it rises $20k.
Selling cost 10k plus rent $20k plus $20k in capital growth = $50k loss
Income from invested money around $20k
You are $30k behind in year one.
Year 2 another 20k or $30k, Year 3 another $20k
So after 3 years you are $70k down and still up for $10k - $20k in stamp duty when you buy back in.
Imagine the situation for shorters who do not have the $420k invested. The situation in Perth is you are $100k down in 2 years.

But the crash will fix all. You need property to fall 25% just to get back into what you had 3 years before.

Each to their own and the coming years will sort out who called it right, but for me shorting property is one of the dumbest and high risk strategies around, do it with an investment property but not with your PPOR.