It's not JUST about tax, it's more about tax timing tax deferral, good investment strategy and value.
A property (or any investment) has to be value for money right? But it doesn't have to be value for money right now. A property that is going to make a loss initially is presumably one that needs investment, and as such it should be for sale at a discount. Market forces mean that the discount should reflect the amount of money that needs to be spent on it, so in practise, the income loss should be appropriately offset, and if tax efficiency is improved, then it's a win.
As we know, tax is not linear, the more you earn the disproportionately high your tax is. A tax payer who is going to pay a lot of tax (this year, next year, whatever time scale is being worked to) at the higher levels because of a high level of income, who doesn't really need that income, at least not right now, COULD create more costs (if they pay back long term) and thus reduce tax, or invest in a negatively geared property. This will have the effect of smoothing out and/or deferring a relatively high tax (and thus low tax efficient) period. Of course, as you say, there's no point if there's no pay back in the medium or long term.
Also, if you think about it, if you can make money in the future buy investing now, and that investment is serving to improve tax efficiency now, you are actually investing the tax you would have paid and making money out of it! This is not a terrible thing for the tax collector (at least in theory) because long term the tax revenue should still be greater (so in effect the tax collector is invested as well).
Also, any property that is in need of investment will attract less buyers, and the more investment required the fewer buyers will be interested. At the extreme end you have properties that are more of less a write off (being sold off my mortgage lenders and insurance companies for example, after fire damage, evidence of subsidence, etc) and for these properties you can't even get mortgages, so the only eligible buyers are the ones with enough cash not only to buy it but also deal with all the problems.
Basic supply and demand means less buyers means less competition and less price. In practise the discount should be quite disproportionate to the investment required because or the extra risk, and thus more negative the gearing the more opportunity for long term gain there should be.
All this presumes you don't buy badly of course!
Not forgetting too of course that you using the lenders money to leverage and propel growth and future income.
Here's an example of how the tax collector discounts your investment.
Imagine your income is 100K. Let's say tax is 0% from 0-30K, 20% from 30K to 60K, and 50% 60K up. This means you are going to pay 26K tax and achieve 74K net income (26% tax).
If you now have a property that makes a loss of 20K, you pay 16K tax instead, 10K less (now 17.5% tax) and achieve 64K net income.
Let's assume the property loses this income for one year only. If you assume that the property is fair value considering the loss it is attracting short term, then the actual loss of income 20K has been invested, but your net income has reduced by only 10K.
Of course later, the property might become profitable, either because revenue is greater than cost, or because there is a balance sheet accounting profit due to appreciation, and thus your income might now be 150K (net 99K). The point is you've invested 20K, whilst losing only 10K of net income, and now you're better off. The tax collector is better off too (as your tax bill is now 51K), and the lender has your loan interest. Everyone's happy you borrowed that money and took that risk. Incentive to do it of course is greater the more (percentage wise) tax you pay.
One final thing, just in case it's not obvious, and this does depend on the tax regime of the country so might not apply to everyone, and I know you explicitly noted in your question that you understand the property can appreciate and offset the loss in the long run, but, that capital gain may be taxed at a lower rate to your income tax, thus if you give away money from income tax and get back the same amount as a capital gain, thus may give you a direct tax advantage for that reason. You're still spending short term and reducing short term net income in favour of future income though, and there's never any guarantee a property will appreciate of course for that matter, but it's perhaps something that should be mentioned as part of a complete answer.