Wait, so you can get paid to renovate a place above what the market will pay in rent and deduct the difference from your taxes, but then eventually sell the palace later and make cap gains on that?
The original idea was that people would lower the rent to make renting more affordable. This rarely ever happens in practice because tweaks to the law mean that you can claim interest and expenses without actually renting the property (set the rental at an unaffordable price point and leave the house vacant).
The negative gearing only applies to ongoing expenses (e.g. maintenance, interest, depreciation) not to capital expenses.