Real estate, post level 4

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1133 posts

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#2679418 23-Mar-2021 16:58

snowfly:

...Could we start up a limited company, move houses into company, and the company (as a business) still can claim interest? (I can't see where it says company interest is being changed???)...

Not an accountant, but I believe the deduction changes do apply to residential property owned by a 'close company' (5 or fewer shareholders with >50% of voting interests).

antonknee

1133 posts

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#2679434 23-Mar-2021 17:03

GV27:
Nor does it accumulate for you to offset against a future brightline obligation, is my understanding.

I think the interest expense on a given property can currently can be used to offset a brightline obligation for that property, IF that property's gain would be taxed on sale. I could be wrong, but that was what I understood from the IRD.

Sounds like this will be consulted on.

IRD: "Consultation will cover the details of an exemption for new builds acquired as a residential investment property, and whether all people who are taxed on the sale of a property (for example under the bright-line tests) should be able to deduct their interest expense at the time of the sale. "

BlinkyBill

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#2679470 23-Mar-2021 18:40

antonknee:

snowfly:

...Could we start up a limited company, move houses into company, and the company (as a business) still can claim interest? (I can't see where it says company interest is being changed???)...

Not an accountant, but I believe the deduction changes do apply to residential property owned by a 'close company' (5 or fewer shareholders with >50% of voting interests).

I haven’t seen anything other than reporting, but I would be staggered if the interest provision didn’t apply to limited liability companies. The focus is on residential investment properties, not the owners of residential investment properties.

dafman

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#2679477 23-Mar-2021 18:53

We are in the ultimate catch 22 as a country.

If prices fall, a significant proportion of mortgage holders will end up in a situation of negative equity.
If prices don’t fall, the majority of people who don’t own a home never will. That’s never.

There is no easy win, ultimately one of the two groups above will feel aggrieved.

The reality is that we are the most indebted nation in the world when it comes to housing. If our appetite for housing debt outstrips every other developed nation, then something must be out of balance. I emphasise with investors, but something had to be done. Today’s changes were not only needed, they were long overdue IMHO.

antonknee

1133 posts

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#2679480 23-Mar-2021 19:11

BlinkyBill:

I haven’t seen anything other than reporting, but I would be staggered if the interest provision didn’t apply to limited liability companies. The focus is on residential investment properties, not the owners of residential investment properties.

Seems a fair assumption. I based that statement off of the IRD paper released today, but it’s obviously not the one source of the truth.

You could make an argument that something like an LLC developing an apartment complex with a build to rent model (as is popular overseas, or as a local example Ockham’s Modal development) being exempted could be a net benefit.

mattwnz

20164 posts

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#2679489 23-Mar-2021 19:43

dafman:
We are in the ultimate catch 22 as a country.

If prices fall, a significant proportion of mortgage holders will end up in a situation of negative equity.

If prices don’t fall, the majority of people who don’t own a home never will. That’s never.

There is no easy win, ultimately one of the two groups above will feel aggrieved.

The reality is that we are the most indebted nation in the world when it comes to housing. If our appetite for housing debt outstrips every other developed nation, then something must be out of balance. I emphasise with investors, but something had to be done. Today’s changes were not only needed, they were long overdue IMHO.

The numbers won't likely be that big, but depends what percentage the fall is. It will likely be mainly those who purchased in the last year. Then it will many affect investors and First home buyers. But the government could help those affected. But anyone buying at these crazy prices that was fuelled by speculation were taking a risk, and any investment is not without risk. The same problem could occur if there was a major natural disaster and the governemnt were forced to buy back many peoples houses due to bad land, which as per the chch eqs, is at the councils RV. Many people are paying well over the RV so would be in negative equity if they recently purchased the house.

quickymart

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#2679532 23-Mar-2021 22:27

How did this all work in the 80s and 90s? There were heaps of vacant houses, therefore prices were low? It's simple supply and demand, as I understand it.

Not 100% sure how today's announcement will help me, but I suppose it's better than doing nothing.

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mattwnz

20164 posts

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#2679552 23-Mar-2021 23:51

We weren't importing 70,000 people a year into the country back in the 80s and 90s. This has created an artifical high demand for houses. We also didn't have things like airBNB and less people owned second homes which they may use as a weekender etc. People essentially house and land banking. Many are being rented but the big money has been in the capital gains

Hopefully when the trans tasman bubble opens, many young people will head over to Oz to work and buy houses. That should relieve pressure on the NZ market. It is pretty hopeless situation here for them if they hope to buy a house.

Handle9

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#2679563 24-Mar-2021 00:43

quickymart:

How did this all work in the 80s and 90s? There were heaps of vacant houses, therefore prices were low? It's simple supply and demand, as I understand it.

Not 100% sure how today's announcement will help me, but I suppose it's better than doing nothing.

Honestly it won't help you. It will slow down the market but it's not going to magically make Auckland affordable.

This will sound callous, and it certainly gives me no pleasure to write it, but you need to either plan to rent for a very long time, likely the rest of your life, or to plan to move to another city or country. Housing affordability will not get better in the short or medium term.

If I return to NZ I almost certainly won't be living in Auckland, even though I own a house there.

mattwnz

20164 posts

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#2679564 24-Mar-2021 01:39

Handle9:

quickymart:

How did this all work in the 80s and 90s? There were heaps of vacant houses, therefore prices were low? It's simple supply and demand, as I understand it.

Not 100% sure how today's announcement will help me, but I suppose it's better than doing nothing.

Honestly it won't help you. It will slow down the market but it's not going to magically make Auckland affordable.

This will sound callous, and it certainly gives me no pleasure to write it, but you need to either plan to rent for a very long time, likely the rest of your life, or to plan to move to another city or country. Housing affordability will not get better in the short or medium term.

If I return to NZ I almost certainly won't be living in Auckland, even though I own a house there.

I have seen quite a few people suggesting to young people to leave NZ if they want to own a home. There appear to be places in Oz which offer far better value houses and may offer a better life. It is sad to say that. Not that Austral;ias prices are much better, and they seem to have similar problems with their housing market, just not quite so bad.

It is sad that Auckland is now no longer a city that is able to, or wanted to be lived in, by many NZers due to the very high price of housing and the changes that have occurred to the urban fabric. That seems to be the cost of what we have done over the last 20 years. Increasing our population so quickly before we had the houses and infrastructure to cope. Now we are playing catchup, and there are rampant speculators preying on this, with real estate agents also driving it with them now manly selling via deadline sales and tenders, or auctions. We also shouldn't need so many rentals and landlords, as anyone who wants their own house, should be able to achieve this, without getting into some huge debt that even a lotto win may not be able to payoff. As the PM said yesterday, NZs prices have risen faster than any other country which is why these changes had to be made. Anyone complaining about these changes should realise that it is because of previous inaction, that this has occurred, and it had to be expected. The PM did warn people last year, but prices escalated after that warning.

What I think will be interesting, is if investors now step away to reassess things, and then see what happens to prices. Or will they just continue as they have been. If they continue, then it shows that these changes are unlikely to have much affect on prices. But I think they may risk increasing rent over the next few years.

mattwnz

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#2679565 24-Mar-2021 01:44

The other thing is the government could always bring in DTI lending after May once they have heard back from the reserve bank, but apparently they don't want this to affect first home buyers. This could also affect investors. Apparently the reserve bank wants DTIs introduced

Handle9

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#2679567 24-Mar-2021 02:32

dafman:

New Zealand is the most-leveraged country in the developed world for housing debt

Do you have a citation for this?

Batman

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#2679573 24-Mar-2021 06:50

dafman:
We are in the ultimate catch 22 as a country.

If prices fall, a significant proportion of mortgage holders will end up in a situation of negative equity.

If prices don’t fall, the majority of people who don’t own a home never will. That’s never.

There is no easy win, ultimately one of the two groups above will feel aggrieved.

The reality is that we are the most indebted nation in the world when it comes to housing. If our appetite for housing debt outstrips every other developed nation, then something must be out of balance. I emphasise with investors, but something had to be done. Today’s changes were not only needed, they were long overdue IMHO.

I don't see any action, drive or incentive to build more houses. Is there a part 2 to the shake up or is this it.

If this is it, it relies on all speculators to liquidate. The housing market here is like a share market. If everyone keeps their stock price will go up. If everyone sells price goes down.

I see the economists are predicting funny things again. Can't rely on them to know anything useful about the future.

eracode

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#2679574 24-Mar-2021 06:56

GV27:

eracode:

Totally agree - it’s not logical and introduces a major distortion into the tax regime.

The tax system is full of this kind of stuff- employees can't claim things contractors can. Home owners can't claim anything, even if they buy the exact same house that was formerly triggering allowable deductions as a rental. We tax some things on an unrealised or deemed basis and other things on an actual basis. The tax system has never been consistent in this regard.

Of course our tax system is not consistent but the fact that there are existing anomalies that have arisen over time doesn’t legitimise or excuse the introduction of a new major distortion like this one.

Sometimes I just sit and think. Other times I just sit.

Batman

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#2679576 24-Mar-2021 07:08

mattwnz: We weren't importing 70,000 people a year into the country back in the 80s and 90s. This has created an artifical high demand for houses. We also didn't have things like airBNB and less people owned second homes which they may use as a weekender etc. People essentially house and land banking. Many are being rented but the big money has been in the capital gains

Hopefully when the trans tasman bubble opens, many young people will head over to Oz to work and buy houses. That should relieve pressure on the NZ market. It is pretty hopeless situation here for them if they hope to buy a house.

When the reserve Bank announced lvr restrictions for march, House prices shot up coz everyone wanted to get in before the cut off.

I see there is a cut off here. October.... Yippee...

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