Housing Announcement and Reforms 23/03/2021

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#2680935 26-Mar-2021 10:32

tdgeek:

https://www.interest.co.nz/property/109587/number-new-homes-being-completed-auckland-has-doubled-over-last-five-years-and

This is the bigger news. Building is a bull market right now. Why? Maybe builds offer better value than a used house that's rising in price but decreasing in value. The capital assistance should help this grow. Any of these builds that come from a renter reduces rental demand.

ONLY is building out strips demand because of population increase.

And Auckland is NOT New Zealand.

Paul1977

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#2680940 26-Mar-2021 10:37

sir1963:

The housing crisis is not landlords or property developers fault, its government and their kicking the can down the road.

I agree. You can't blame investors for wanting to make money. The situation sucks for FBHs, but there's a real tendency for the so called "haves" to be unfairly vilified by the "have nots".

I'm not an investor, a renter, or a FHB. I'm just like a lot of people out there, own a home to live in and have a mortgage. So I'd like to think my opinion is somewhat objective at this point.

sir1963

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#2680941 26-Mar-2021 10:40

I have done interest only for some periods just to free up cash for doing other works on the rentals, or allow me to stop putting in extra money from my wage into the rentals when I have had personal expenses I needed to meet.

Its the WHY and for HOW LONG that are also important.

But there is ZERO chance of me doing any significant capital works on the rentals now (for example installing double glazing). Sure interest rates are cheap now but when they rise again its going to be a major problem, the only good plan now is to pay off debt faster to remove this exposure to risk and the only way to do this is to raise rents.

Fred99

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#2680943 26-Mar-2021 10:41

sir1963:

Well in my case my tenants are not paying anywhere close to the "market rate", in fact they have had no had a rent increase for something like 5+ years. And I know a number of landlords who have long term tenants who are doing exactly this.

So in that case, you've probably received the free gift of your property portfolio value doubling in capital value, thus halving leverage even if all your properties were bought on zero deposit interest-only loans, the extra tax you will eventually have to pay will be absolute peanuts compared to your overall wealth.

While it's nice of you to not charge rent at "the maximum the market will bear", that is subject to the proviso that if you want the advantage of keeping good long-term tenants by not hiking rent at every opportunity rather than go through the cost and risk of having a high churn rate of tenants, you may be already at the ideal maximum the (ie "your") market can bear anyway.

If the above honestly describes your circumstances and you want sympathy for the fact that you'll probably not be able deduct the interest you pay from income - but you've got 5 years as that ramps up, to adjust to that reality, then sorry - my tear ducts are completely dry.

Apparently only one in three residential properties in NZ are occupied by owners for whom it's the sole residential property they own. These people have never been able to claim any interest as a cost against any other income (ie mainly wages) they make, and IMO it's not reasonable or fair that residential property investors have been able to.
It's been a stacked deck against home owners and in favour of property investors, and that's not fair.

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#2680951 26-Mar-2021 10:51

Paul1977:

I'm not an investor, a renter, or a FHB. I'm just like a lot of people out there, own a home to live in and have a mortgage. So I'd like to think my opinion is somewhat objective at this point.

You don't have to be one of those classes to have been affected. Out of control rising house prices hurt everyone except the investor by taking money out of the useful economy and putting it into investors pockets to die.

I've been a landlord in the past myself and I am still finding it very hard to get all broken up over the fact that some of these investors are seeing the first hurt on their investment, ever, and demanding someone make it all better for them as OMG their human rights are being bludgeoned.

The thing about safe investments is that they are also supposed to be low return. You're not supposed to get it both ways. Adding in some risk to match the astronomical returns is only a step in the right direction to balance things out.

Lots of people had their investments tanked during other financial crises. Property investors aren't special; why should they expect to be immune?

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Fred99

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#2680962 26-Mar-2021 11:03

Paul1977:

I'm not an investor, a renter, or a FHB. I'm just like a lot of people out there, own a home to live in and have a mortgage. So I'd like to think my opinion is somewhat objective at this point.

Me too, though mortgage paid off decades ago. We'll have something else in common too I expect. Over the years, we haven't been able to reduce our taxes by claiming the interest we've paid on mortgages, so the total will coincidentally be exactly the same. I believe the total rebate I've received is $0.00.

OTOH if "negative gearing" had continued, and you bought the average million dollar house on 30% deposit now as an "investment property", presuming interest rates normalise to average 5% over a 25 year mortgage, you'd have been able to claim back about $175,000. And that's $175,000 "someone else" is going to have to pay.

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sen8or

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#2680963 26-Mar-2021 11:05

The primary difference in your scenario Fred99 is that investors are a business, private residential ownership is not. The IRD has always been clear on the distinction of not allowing personal expenses to be offset against income. When you opt to take on a property investment, you are accepting the risk that goes with it. Granted, the risk of things going wrong has been low historically for real estate, but there is risk none the less. If a property sits vacant for 2 months for whatever reason, thats the investors risk to bear, no one elses. Also, its not like "property investors" is an exclusive club that only lets a privileged few into, anyone with the financial ability and appetite for the risk is free to become a property investor, wage/salary earners included. What stops some/many from doing so is their risk/debt appetite and/or ability to borrow.

The Govt are calling to make property investors a class of their own. I assume that some costs are deductible still (repairs/maintenance, insurance, property management fees, rates etc) but just not the big one (interest). No other businesses have such limitations and it is completely reasonable that "business expenses" are claimed.

Whats to stop the Govt from targeting other such market segments when it becomes politically palatable to do so? They may look at extending this to commercial property, otherwise you are just making one segment look significantly more attractive than the other, this will skew investment.

tdgeek

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#2680965 26-Mar-2021 11:10

sen8or:

Whats to stop the Govt from targeting other such market segments when it becomes politically palatable to do so? They may look at extending this to commercial property, otherwise you are just making one segment look significantly more attractive than the other, this will skew investment.

They want to remove investors from skewing the supply and demand for homes, so no issues with any other investments. Nov/Dec 2020, owner occupiers bought only 1/3 of the sales, competing 2 to 1 against non occupiers

GV27

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#2680972 26-Mar-2021 11:20

sen8or:

The Govt are calling to make property investors a class of their own. I assume that some costs are deductible still (repairs/maintenance, insurance, property management fees, rates etc) but just not the big one (interest). No other businesses have such limitations and it is completely reasonable that "business expenses" are claimed.

Investor activity is generating social harm. We tax social harm through excises. So sure, whatever, let investors keep claiming interest costs. But levy them for the social harm their market activity causes.

And while we're at it, tax investors like we tax FIFs. You know, because it's a proper investment and all.

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#2680976 26-Mar-2021 11:34

sen8or:

Also, its not like "property investors" is an exclusive club that only lets a privileged few into, anyone with the financial ability and appetite for the risk is free to become a property investor, wage/salary earners included. What stops some/many from doing so is their risk/debt appetite and/or ability to borrow.

It's not like "private island owners" is an exclusive club that only lets a privileged few into, anyone with the financial ability and appetite for the risk is free to become a private island owner, wage/salary earners included. What stops some/many from doing so is their risk/debt appetite and/or ability to borrow.

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Fred99

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#2680978 26-Mar-2021 11:39

sen8or:

The Govt are calling to make property investors a class of their own. I assume that some costs are deductible still (repairs/maintenance, insurance, property management fees, rates etc) but just not the big one (interest). No other businesses have such limitations and it is completely reasonable that "business expenses" are claimed.

Whats to stop the Govt from targeting other such market segments when it becomes politically palatable to do so? They may look at extending this to commercial property, otherwise you are just making one segment look significantly more attractive than the other, this will skew investment.

Yes. Other legitimate expenses remain deductible.

There's a problem with the sentence I highlight in bold. While that's probably the truth, it's not the "whole truth" and the whole truth really matters. Those other businesses would also pay full tax on profits for any capital gains made. You can't sell a doodack you bought for your business for way above capital value, then whack the proceeds in your pocket and consider it a windfall, successfully avoiding tax by merely telling IRD that when you bought the doodack, you didn't buy it with the intention of making a capital gain.

The argument that residential property investment is suddenly being treated differently is fallacious. It's always been treated differently, that's always been "generous", and it's always skewed investment because it has made that segment more attractive than others.

Of course a *proper capital gains tax on residential property investment could have fixed it, but apparently we didn't want it.

*"proper" because for example across the Tasman they do have a Claytons CGT, watered down and toothless to the extent that no Australian pays it, but politically expedient to roll out from time to time when moral panic over things like "China=Bad" and "they're squeezing our kids out of owning a home" sentiment builds, so the crowd cheers when a populist government tweaks the rules to stick it to foreign investors. That didn't work of course in terms of making homes more affordable. SMH yesterday had an article claiming that property prices will go up 19% this year.

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#2681025 26-Mar-2021 13:11

Fred99:

sir1963:

Well in my case my tenants are not paying anywhere close to the "market rate", in fact they have had no had a rent increase for something like 5+ years. And I know a number of landlords who have long term tenants who are doing exactly this.

So in that case, you've probably received the free gift of your property portfolio value doubling in capital value, thus halving leverage even if all your properties were bought on zero deposit interest-only loans, the extra tax you will eventually have to pay will be absolute peanuts compared to your overall wealth.

While it's nice of you to not charge rent at "the maximum the market will bear", that is subject to the proviso that if you want the advantage of keeping good long-term tenants by not hiking rent at every opportunity rather than go through the cost and risk of having a high churn rate of tenants, you may be already at the ideal maximum the (ie "your") market can bear anyway.

If the above honestly describes your circumstances and you want sympathy for the fact that you'll probably not be able deduct the interest you pay from income - but you've got 5 years as that ramps up, to adjust to that reality, then sorry - my tear ducts are completely dry.

Apparently only one in three residential properties in NZ are occupied by owners for whom it's the sole residential property they own. These people have never been able to claim any interest as a cost against any other income (ie mainly wages) they make, and IMO it's not reasonable or fair that residential property investors have been able to.
It's been a stacked deck against home owners and in favour of property investors, and that's not fair.

My plumber works from home, he claims interest, rates, insurance, maintenance. Claimed his double glazing as well, and NO CGT on it all. Even better he gets to buy for his personal use at wholesale prices which none of us get.

He also claims all his vehicle expenses including petrol, registration , insurance, depreciation , etc all while having unlimited KMs for personal use. Yep he pays perk tax but the write off more than makes up for that. AND he gets to claim the GST back on all of that too.

My local supermarket not only claims interest, it claims depreciation as well and the GST on it all.

And given owner occupier rates are over 60%, I do not believe that 50% of home owners own more than 1 personal property. But ALL of those property owners have received the capital agin too.

But here is another couple of theoretical for you.

If we doubled the value of everything you own, along with everyone else, how much extra money do you have to spend at the supermarket, the answer starts with $0. So the capital gains we of zero use.

House A and house B are identical , and the owner of house A is mortgage free. Over the years both houses have had a $200,000 capital gain. So still 100% equal.

Owner of house A has to shift towns for his job He has to sell house A, that was mortgage free, and with a CGT (bright line test) and now has to pay $60,000 in tax , how much better off has capital gains made him ?

Bottom line is that Landlords are a business, just like any other and should be treated the same.

This would be like all entertainers get to deduct expenses for taxes, except Comedians because they make fun of politicians and are therefore not funny nor entertaining and so they get to "Close a loop hole".

Governance by capricious action does not make for a good economy.

There is less than ZERO chance I would invest in a new build as a rental, because quite honestly, I have less than zero faith Robinson won't change his mind. And I seriously think ALL investors will be looking closely at this.

sir1963

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#2681046 26-Mar-2021 13:25

Fred99:

sen8or:

The Govt are calling to make property investors a class of their own. I assume that some costs are deductible still (repairs/maintenance, insurance, property management fees, rates etc) but just not the big one (interest). No other businesses have such limitations and it is completely reasonable that "business expenses" are claimed.

Whats to stop the Govt from targeting other such market segments when it becomes politically palatable to do so? They may look at extending this to commercial property, otherwise you are just making one segment look significantly more attractive than the other, this will skew investment.

Yes. Other legitimate expenses remain deductible.

There's a problem with the sentence I highlight in bold. While that's probably the truth, it's not the "whole truth" and the whole truth really matters. Those other businesses would also pay full tax on profits for any capital gains made. You can't sell a doodack you bought for your business for way above capital value, then whack the proceeds in your pocket and consider it a windfall, successfully avoiding tax by merely telling IRD that when you bought the doodack, you didn't buy it with the intention of making a capital gain.

The argument that residential property investment is suddenly being treated differently is fallacious. It's always been treated differently, that's always been "generous", and it's always skewed investment because it has made that segment more attractive than others.

Of course a *proper capital gains tax on residential property investment could have fixed it, but apparently we didn't want it.

*"proper" because for example across the Tasman they do have a Claytons CGT, watered down and toothless to the extent that no Australian pays it, but politically expedient to roll out from time to time when moral panic over things like "China=Bad" and "they're squeezing our kids out of owning a home" sentiment builds, so the crowd cheers when a populist government tweaks the rules to stick it to foreign investors. That didn't work of course in terms of making homes more affordable. SMH yesterday had an article claiming that property prices will go up 19% this year.

And your analogy is 100% wrong.

If the company took out a loan to buy the doodack, the interest is deductible no matter if they keep it or sell it.

Those other business also get to claim the GST back even if they are the final user (eg petrol for their vehicles, tools, repairs, electricity, rates, insurance, etc etc etc) and that's on top of everything else such as interest.. Even people who work from home can do all of that based on a % of floor space. And if a business has multiple branches, those branches are not ring fenced either.

Property rental has NOT always been treated differently , that started when they killed off LAQCs.

Other more successful economies than NZ (eg Germany, Switzerland) also have LOWER rates of ownership.

sir1963

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#2681049 26-Mar-2021 13:28

GV27:

sen8or:

The Govt are calling to make property investors a class of their own. I assume that some costs are deductible still (repairs/maintenance, insurance, property management fees, rates etc) but just not the big one (interest). No other businesses have such limitations and it is completely reasonable that "business expenses" are claimed.

Investor activity is generating social harm. We tax social harm through excises. So sure, whatever, let investors keep claiming interest costs. But levy them for the social harm their market activity causes.

And while we're at it, tax investors like we tax FIFs. You know, because it's a proper investment and all.

https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/types-of-business-income/foreign-investment-funds-fifs

SaltyNZ

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#2681052 26-Mar-2021 13:30

sir1963:

Other more successful economies than NZ (eg Germany, Switzerland) also have LOWER rates of ownership.

With rules tilted so far in favour of tenants that Kiwi landlords would be having a stroke. So, if you're suggesting we go that way...?

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