Housing Announcement and Reforms 23/03/2021

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#2680212 25-Mar-2021 10:52

I have to give Ardern and Robertson credit, this is really having an impact on the conversation around property and raising awareness amongst the wider population about how the deck has been tilted in investor's favour over the last couple of decades.

True, they could have done further, but I think the real action will come from the RBNZ - maybe not in the next meeting, but we could well see some discussion about eliminating interest-only investor lending (40% of all investor lending is done on an interest-only basis) and rules around leveraging and the LVRs.

But as a first step, it has really shone a light on the attitude of some investors and how deeply harmful their attitudes are towards renters and those aspiring to own their first home.

gzt

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#2680234 25-Mar-2021 11:08

Fred99:
gzt: Loved this image on this other interest.co.nz article! where is this?
It's house-cliff_2.jpg on numerous storage devices, but I expect you'll need to search for house-cliff.psd to find the original location.

Art project at San Diego Uni: https://en.wikipedia.org/wiki/Fallen_Star

Fred99

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#2680246 25-Mar-2021 11:18

gzt:

Art project at San Diego Uni: https://en.wikipedia.org/wiki/Fallen_Star

Oh wow. It's real.

Auckland Uni should build one of those for their vice-chancellor to live in.

rayonline

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#2680453 25-Mar-2021 14:38

blackjack17:

quickymart:

Interesting changes announced today, but I don't know how much they will benefit me as a potential first home buyer trying to get into the market. I didn't see a great deal about increasing the number of new builds, although (and someone correct me if I'm wrong) I may have seen somewhere about how the government would pay to do the reticulation (streets, road lighting, power, water etc) into new subdivisions? That will help developers a bit, surely.

Why on earth should the government aka tax payers help pay for developer's new sub divisions?

Different countries have different views on it but maybe that is why govt takes on som social responsibility. We could also privitise the water supply and hospitals .. and take away the pension. Some countries do that.

rayonline

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#2680458 25-Mar-2021 14:49

To me over the years investors had it in their favours. What they have gained have not just vanished away due to this govt announcement. They are doing a lot better than an ordinary NZder. The benefits they have got have been locked away.

I think the interest deductibility issue is a way to skew the playing field. CGT 10yrs now for new purchases from the 27 March, normal businesses have to pay tax on capital right when they finally sell their business? So again investors had it easy and is still easier if they hold their property business for 10yrs. The issue with your main home. If a home is lived in and later is rented out, that is no longer a family home right? So why shouldn't the capital be taxable? Even if so they still have the 10yr get of out jail card when other type of businesses may not. What other business are there that you can run it marginally or at a loss year after year including no salary yourself as the sole trader investor and then you get a handsome tax free capital at the end now after 10yrs? Many homes in the future may only need the 5yr or 2yr requirement depending when the settlement date is.

sen8or

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#2680555 25-Mar-2021 15:59

rayonline:

To me over the years investors had it in their favours. What they have gained have not just vanished away due to this govt announcement. They are doing a lot better than an ordinary NZder. The benefits they have got have been locked away.

I think the interest deductibility issue is a way to skew the playing field. CGT 10yrs now for new purchases from the 27 March, normal businesses have to pay tax on capital right when they finally sell their business? So again investors had it easy and is still easier if they hold their property business for 10yrs. The issue with your main home. If a home is lived in and later is rented out, that is no longer a family home right? So why shouldn't the capital be taxable? Even if so they still have the 10yr get of out jail card when other type of businesses may not. What other business are there that you can run it marginally or at a loss year after year including no salary yourself as the sole trader investor and then you get a handsome tax free capital at the end now after 10yrs? Many homes in the future may only need the 5yr or 2yr requirement depending when the settlement date is.

No, normal businesses do not pay tax on capital profits. They may have to pay tax on depreciation recovered if any of the assets sold are sold for more than their depreciable value, but the intangible asset (goodwill for example) are not taxable - You start a business with $100k capital. Over the course of 5 years, you build up a solid reputation and revenue and profits (profits are taxed) build nicely and someone wants to buy your business for $500k. The $400k profit is not subject to tax.

What other businesses are there that run at marginally no profit - How about Xero for one. Almost the whole value of the shares is (in my opinion) related to future earning potential. I think 2020 was the first year they actually posted a profit (although 2018 they delivered their first profit before interest, depreciation and amortisation). Looking at their latest annual report, it will be some time before they are liable to pay "income tax / company tax".

For many businesses / business people the goal is not so much the profit you can extract from the business by way of salary or earnings, but, by reinvesting the profit into the business, building its value so that you can sell it for more than you bought it for, kind of business 101.

Investors are being singled out solely because its the political topic of the day, they are being denounced as evil capitalists hell bent on rorting the system. I am sure there are some where that statement is true, but I'd bet there are more where its a mom/dad type rental which is their nest egg for retirement (which successive Govts have been pushing for many years).

Invest in "productive assets" you say? Why should they?

The returns in a business can be substantially more than returns on residential, but there is a much higher risk. Businesses are subject to ebbs and flows of demand, what is hot one year is dead in the water the next. Capital gone and nothing to sell. Just look at the number of businesses that don't make it past 5 years trading. I don't have the statistics to hand, but more than 90% of NZ businesses employ less than 20 people. Small businesses are the riskiest of all.

I am not an investor, the new changes are not going to directly impact my daily life, but this (in my view) really is NZs tall poppy syndrome at its best.

Why should they be able to put up rents? Because they can. They have taken the risk with their capital. Renters have the option to accept the rent or not, you can always vote with your feet. If investors struggle to get higher rent, the market will adjust it down. Supply / demand.

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Paul1977

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#2680564 25-Mar-2021 16:21

Removing interest deductions from mortgages may lessen investor purchases, but it will also shrink the number of available rentals. The investors that keep their rentals will pass the extra cost onto the tenant, meaning increased rent. And the smaller supply of rental properties will cause rent to rise even further due to simple supply and demand.

It may do something to slow increasing house prices, but at what cost? Those who simply cannot get into the housing market will be faced with higher rents.

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#2680626 25-Mar-2021 19:32

Paul1977:

Removing interest deductions from mortgages may lessen investor purchases, but it will also shrink the number of available rentals.

Can you clarify?

Say I am a landlord, I see these changes, I sell. To a FHB. Im happy, FHB is happy, he is now a home owner. The rental he bought is a home now, ones less rental. The rental he left is now available. No reduction in rentals.

tdgeek

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#2680630 25-Mar-2021 19:36

sen8or

No, normal businesses do not pay tax on capital profits. They may have to pay tax on depreciation recovered if any of the assets sold are sold for more than their depreciable value, but the intangible asset (goodwill for example) are not taxable

Why single out intangible assets? If a business has capital assets, say Land and Buildings, company cars, equipment, if they sell it and there is a profit after depreciation they pay tax.

Handle9

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#2680632 25-Mar-2021 19:43

tdgeek:

sen8or

No, normal businesses do not pay tax on capital profits. They may have to pay tax on depreciation recovered if any of the assets sold are sold for more than their depreciable value, but the intangible asset (goodwill for example) are not taxable

Why single out intangible assets? If a business has capital assets, say Land and Buildings, company cars, equipment, if they sell it and there is a profit after depreciation they pay tax.

You miss-understood the post. Capital gain on tangible assets isn't taxable. You have to payback claimed depreciation if you sell for more than the depreciated value.

tdgeek

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#2680635 25-Mar-2021 19:45

sen8or:

What other businesses are there that run at marginally no profit - How about Xero for one. Almost the whole value of the shares is (in my opinion) related to future earning potential. I think 2020 was the first year they actually posted a profit (although 2018 they delivered their first profit before interest, depreciation and amortisation). Looking at their latest annual report, it will be some time before they are liable to pay "income tax / company tax".

I dont follow how that relates to residential property. What you have described is share trading. A solid reliable company earns a profit, pays a dividend, and the P/E, its based on the potential future.. Hope and optimism. In this topic we are talking about real assets, and its our home. If we wish to have our home treated like the sharemarket, which it is right now, thats fine, lets jump in. But the purpose of the measures is to stop that, so the property is based on cost plus margin, not P/E or hope, so it stays within the reach of wage and salary earners

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tdgeek

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#2680637 25-Mar-2021 19:59

Handle9:

You miss-understood the post. Capital gain on tangible assets isn't taxable. You have to payback claimed depreciation if you sell for more than the depreciated value.

No.

"Capital gain on tangible assets isn't taxable." Of course its not, I never said that.

"You have to payback claimed depreciation if you sell for more than the depreciated value." Isn't that obvious? You have claimed depreciation, so if you sell at a profit on NBV, of course you pay tax on that profit. War of words if you wish to present that as payback of depreciation.

Handle9

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#2680641 25-Mar-2021 20:01

tdgeek:

Handle9:

You miss-understood the post. Capital gain on tangible assets isn't taxable. You have to payback claimed depreciation if you sell for more than the depreciated value.

No.

"Capital gain on tangible assets isn't taxable." Of course its not, I never said that.

"You have to payback claimed depreciation if you sell for more than the depreciated value." Isn't that obvious? You have claimed depreciation, so if you sell at a profit on NBV, of course you pay tax on that profit. War of words if you wish to present that as payback of depreciation.

You said why single out intangible assets? He didnt.

703

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#2680798 25-Mar-2021 22:16

Rents going up significantly over the next few years to offset against tax bigger bill. When rents go up, the economy shrinks as people don't have surplus or splash out on anything non essential.

This will mean people who are renting at the lower end will become homeless or in state housing.

changes nothing for landlords, as there will be a national wide price hike and there is nothing the government can do about it. Same with increases in commodity prices because the cost of goods has gone up.

There will be a few more first home buyers being able to buy their entry level homes, but most renters have no deposit to borrow any money anyway and will remain renters for life.

so the government better start building to house people.

gzt

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#2680805 25-Mar-2021 22:43

703: Rents going up significantly over the next few years to offset against tax bigger bill. When rents go up, the economy shrinks as people don't have surplus or splash out on anything non essential. This will mean people who are renting at the lower end will become homeless or in state housing.

Already happening for a long time already due to rising rents as a result of house prices and there are already not enough state houses.

On the plus side the tax changes take effect over four years for existing landlords. And, there are already rules around rent review. I agree it's still a concern.

Also on the plus side there are many landlords who own a rental property freehold, who will not be affected by these changes, and are generally pretty slow to increase the rent anyway.

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