Is there an Auckland housing recession guess thread in place

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Reply # 1391484 21-Sep-2015 19:07

TeaLeaf:
mattwnz: I am sure people in Wellington would have loved their house prices to have increased 40% in few years.

you mean in a few months? haha.

i think Auck have trebled in a few years and doubled in 6 months? unless the graphs im looking at are wrong.

and back on CGT, who cares if its slippery slope. you dont pay it on your PRINCIPAL place of residence, and its a fraction of your income percentage in OZ and if you are making income buying and selling houses why on earth shouldnt you get taxed?

Imho CGT is a fair tax. With more planned reductions in income tax it is probably necessary as well. But i have to tell you CGT will reduce some volatility (quick buying and selling) but it will have very little effect on price long term.

TeaLeaf

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Reply # 1391539 21-Sep-2015 20:59

of course. there is nothing unfair about making a profit long term. never has been. but if its how you generate income then i think its as fair as tax on Rent paid. or tax on typing on a keyboard 40 hours a week. and of course in aus if you move into an ex rental for a set period of time you can work around this "issue" i believe.

just my opinion.

Fred99

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Reply # 1391661 22-Sep-2015 09:08

gzt:
TeaLeaf:
mattwnz: I am sure people in Wellington would have loved their house prices to have increased 40% in few years.

you mean in a few months? haha.

i think Auck have trebled in a few years and doubled in 6 months? unless the graphs im looking at are wrong.

and back on CGT, who cares if its slippery slope. you dont pay it on your PRINCIPAL place of residence, and its a fraction of your income percentage in OZ and if you are making income buying and selling houses why on earth shouldnt you get taxed?

Imho CGT is a fair tax. With more planned reductions in income tax it is probably necessary as well. But i have to tell you CGT will reduce some volatility (quick buying and selling) but it will have very little effect on price long term.

I don't think CGT is a "fair" tax at all - it's extremely problematic for a couple of reasons:

To be assessed as an actual "gain", then it should be inflation adjusted - but to what? CPI or a house price index? If the latter, then there would never be a gain.
If it was universal and inescapable, then it would be inherently very unfair to ordinary folks shifting house. Make exceptions - as we have now - and people will structure their affairs so that they don't pay it.
CGT is an "envy" tax - and it doesn't work.

The problem that we have is that policy is set to encourage speculative property investment. You can offset interest costs against income. That seems fair enough from the perspective of not penalising investment in business etc through borrowing, but it's turned into a huge rort for property investors. It's inherently unfair that ordinary folks pay higher tax because many people have structured their affairs to minimise the tax they pay on all their income through property investment.
Result has been massive credit growth, unaffordable house prices for ordinary folks, falling home-ownership rates, and dangerous volatility.

When the market "corrects" it's going to do a lot of damage. Policy should be set to prevent the bubble from forming again, but no political party will have the guts to do it - as the "crash" will be seen to be the problem, not the bubble formation which inevitably resulted in the crash.

gzt

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Reply # 1391701 22-Sep-2015 10:15

These large gains are generated by the economy as a whole. Some taxation of that is fair, particularly to pay for infrastructure that is supporting these gains. However, I 100% agree it will have very little effect on the problem of under-investment in new housing. CGT is a side issue, but implementation seems kind of politically inevitable from both major parties with reduction of the income tax base.

MikeAqua

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Reply # 1391714 22-Sep-2015 10:46

The CGT debate in my view ignores an important question: -

What is the net return on the next best competing investment?

If (after tax) the next best investment still returns less than flipping Auckland property does (after a CGT), it won't affect demand very much.

Interest rates on deposits are rubbish worldwide. Consequently, there is cash looking for investments. The Auckland housing market is easy money for individuals with cash to invest.
For example: Assume I have $1M in cash (I don't

). I could comfortably make a 15% before tax profit flipping Auckland property.

Tax that at the RWT rate of 33% and I still make about 10% after tax. That's fantastic in the international context.

Where else can I make that kind of money on a highly tangible and easily bought/sold asset ?

If I had the money I'd be all over it. The specter of CGT would not deter me at all.

Mike

bazzer

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Reply # 1391739 22-Sep-2015 11:19

gzt: There are a range of visas where you are resident and may be working but do not have permanent resident status. You may be working towards permanent resident for example. These people can and should be able to buy a home. There should be no restriction there.

I'm not so sure about that. If you can't live here permanently, why would you need to buy a house? What's wrong with renting?

Batman

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Reply # 1391753 22-Sep-2015 11:32

if no residents can only buy a new build, that helps in increasing building supply.

by the way, when people mention "foreigners", you have no idea if they are a resident or non resident. you just can't tell from their faces.

TeaLeaf

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Reply # 1391776 22-Sep-2015 12:02

CGT isnt perfect but it does inspire buy and hold strategy vs flip, whether the debate is fair or not ill take that point back.

The concept of residents buying isnt a bad one. With this vast amount of immigration we are led to believe, then when the immigrants have permanent status a natural growth in housing will occur, vs speculative non resident.

So now for the fun part, when the bubble splatters, how much by?

If I draw in line with 80s, 90s etc 8% growth I roughly get the market needs to correct by 40%, which is a lot, but lets say the average property is nearing $1m, $600k actually sounds a lot more sane to those who have seen decades of housing here. It is just Auckland after all, no infrastructure, poor public health, education got thrown out the window decades ago. People live here I think mostly for location, and obviously jobs.

I actually have no idea. But a plateau, do people really think that will happen? Even the government buffered GFC which barely touched us caused a drop. If its a plateau, 30 years ;-p?

Fred99

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Reply # 1391779 22-Sep-2015 12:06

gzt: These large gains are generated by the economy as a whole. Some taxation of that is fair, particularly to pay for infrastructure that is supporting these gains. However, I 100% agree it will have very little effect on the problem of under-investment in new housing. CGT is a side issue, but implementation seems kind of politically inevitable from both major parties with reduction of the income tax base.

Well IMO a CGT is completely the wrong solution to addressing a very real problem. I don't like to make "predictions" but I'll make an exception.

Interest rates will go up, commencing next year, following rises in the US, and at the predicted scale of about 1% per annum for 4 years.
That has two direct outcomes:
1) It will stop house price inflation dead in it's tracks (if we're lucky - as the only other likely scenario is a serious crash). They can put on a CGT if they like, but as there won't be any capital gains made, then it won't collect any revenue. As such, it's completely pointless medium term, and long term would be revoked or watered down (as it was in Australia).
2) Negative gearing (structuring your finances as all sensible "mum and dad" and other property investors have been doing) is presently limited by low interest rates - the less your'e paying in interest, the less you can claw back. As interest rates rise, the amounts that these investors can claw back will increase massively, and that's going to cause a big problem with future budget deficits, compounded on top of increased interest costs for existing NZ Government debt servicing, it's going to be a big black hole. That's even forgetting reduced revenue and increased costs from both lower company takes in a down-market, and increased unemployment (already predicted). I can only guess how that black hole is going to be filled up - larger deficits, higher GST and/or PAYE tax rates, and/or reduced government expenditure.

What's been happening isn't tenable, it's not desirable, there are massive risks, there have been warnings about what's coming from just about every independent economist, only I expect you'll disregard all of those warnings and make jokes about them, because for every article that ever gets published in NZ media (and Aussie and UK media etc), those publishers then print 10 contradictory positive spin articles written by "bank" economists and "real estate experts".

Don't expect Key or any other politician to acknowledge the true situation. They all share the same goal - winning elections. They also know how forgiving the electorate will be when blame can be shifted when abject disaster strikes, as it will be with this one coming - the trigger will be an "event" from overseas.

gzt

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Reply # 1391780 22-Sep-2015 12:06

bazzer:
gzt: There are a range of visas where you are resident and may be working but do not have permanent resident status. You may be working towards permanent resident for example. These people can and should be able to buy a home. There should be no restriction there.

I'm not so sure about that. If you can't live here permanently, why would you need to buy a house? What's wrong with renting?

a) Usually because you are planning to become a permanent resident.
b) In the case of a parent purchasing for students, because 3 or 4 year degree and stability is important.

gzt

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Reply # 1391846 22-Sep-2015 12:39

Fred99: What's been happening isn't tenable, it's not desirable, there are massive risks, there have been warnings about what's coming from just about every independent economist, only I expect you'll disregard all of those warnings and make jokes about them, because for every article that ever gets published in NZ media (and Aussie and UK media etc), those publishers then print 10 contradictory articles written by "bank" economists and "real estate experts".

I'm not sure where you got the idea my views were opposed to that assement. I think these assements of risks are more or less correct. The risks are very high and have been for some time now.

Fred99

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Reply # 1391881 22-Sep-2015 13:01

gzt:
Fred99: What's been happening isn't tenable, it's not desirable, there are massive risks, there have been warnings about what's coming from just about every independent economist, only I expect you'll disregard all of those warnings and make jokes about them, because for every article that ever gets published in NZ media (and Aussie and UK media etc), those publishers then print 10 contradictory articles written by "bank" economists and "real estate experts".

I'm not sure where you got the idea my views were opposed to that assement. I think these assements of risks are more or less correct. The risks are very high and have been for some time now.

Sorry if I seemed to fire at the wrong target. Your comment "CGT is a side issue, but implementation seems kind of politically inevitable from both major parties with reduction of the income tax base" angers me greatly - but that anger isn't intended to be directed at you. You're stating the truth there.

I'd argue strongly against CGT on residential property, from many angles. Another is "fairness" - if you were to be taxed on such a capital gain, then it would only be fair that you'd also be able to get a tax rebate on any capital loss. When the house of cards tumble, I'll be buggered if I want to pay tax to subsidise the losses made by all the speculators who've been looking to make free money.

gzt

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Reply # 1391887 22-Sep-2015 13:17

Fred99: Don't expect Key or any other politician to acknowledge the true situation. They all share the same goal - winning elections. They also know how forgiving the electorate will be when blame can be shifted when abject disaster strikes, as it will be with this one coming - the trigger will be an "event" from overseas.

GFC event did not crash it but it was a minor pause for a short time. The problem central government has is they do not want to be the ones that crash the house of cards. Ideally for them the market would level off slowly. The prime minister has made a few comments about risk in the Auckland market, particularly that with new housing completion coming to the market this will dampen some of the ahem "frothiness".

The overall issue with price is not enough new housing for the demand because the investment money overseas and local (as distinct from owner occupied) is going to the low risk option of purchasing existing houses not creating new value.

gzt

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Reply # 1392114 22-Sep-2015 17:59

The government is tightening the test for taxation of capital gain. Previously it depended on 'intention' which was open to interpretation. The new test will simply apply if the property is sold within two years.

Original announcement:

http://www.radionz.co.nz/news/political/273847/govt-to-tighten-tax-on-capital-gains

Update from the minister:

http://taxpolicy.ird.govt.nz/news/2015-09-10-property-tax-bills-receive-third-reading

From 1st October those property transactions will have tax applied at the rate of the beneficiary of the sale.

This is likely to reduce the attraction of quick flick transactions. It will also level the field a bit when compared to building new houses, but not much.

mattwnz

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Reply # 1392117 22-Sep-2015 18:11

gzt: The government is tightening the test for taxation of capital gain. Previously it depended on 'intention' which was open to interpretation. The new test will simply apply if the property is sold within two years.

Original announcement:

http://www.radionz.co.nz/news/political/273847/govt-to-tighten-tax-on-capital-gains

Update from the minister:

http://taxpolicy.ird.govt.nz/news/2015-09-10-property-tax-bills-receive-third-reading

From 1st October those property transactions will have tax applied at the rate of the beneficiary of the sale.

This is likely to reduce the attraction of quick flick transactions. It will also level the field a bit when compared to building new houses, but not much.

The thing is that this also appear to apply to your primary residence. So people saying there is no CGT on your place of residence are incorrect IMO. If you are buying houses that you live in to do up and flick on, then you have to pay tax, if that was your intention to make a capaital gain, and I beleive that is currently the case. If they were bringing in a targeted CGT like Labour wanted to bring in, and it only applied to second homes, then that is something that is very difficult to police, with potential loopholes. IMO to make things simple, they should just apply it to all houses, and not have any exceptions, like they do with GST. I mean, why should property give preference over other forms of investment, and not be taxed on the gains? At least we don't have other forms of tax in NZ that can relate to property, like stamp duty and inheritance taxes.

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