providers aren't in it for us...they are absolutely creaming it from a captive feed, being us and our future
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Old news but.....
"Yet - if given a simple tweak - it could be turned into an effective capital gains tax targeting the profits investors made when buying and selling homes, Michael Rehm and Yang Yang said in a new research paper."
https://www.newstalkzb.co.nz/news/na...didnt-know-it/
Kiwisaver would be a far better retirement saver IF the default was for growth & not these so called low risk funds. Low risk for serial underperforming more like it with 20-100% held in interest bearing funds. They so underperform by 5-10% compounding yearly its NOT funny.
Old news, certainly, and the 'intention test' is still there. As is IRD's difficult job determining evidence of intention, possibly years ago, even though IRD would place the burden of proof on the owner. No reason it would not apply to any property, including owner occupied, and might be a slight pushback from homeowners on that LOL.
The researchers miss a very important point, that rental property owners seldom start our being cash flow positive but reach break even point in time and start paying tax on rental income*. Using recent purchase prices and expense levels misses the whole point of rentals as investments. This appears to be a major flaw in their argument.
* This point in time changed with the introduction of ring fencing of rental losses. Now that rental losses can no longer be offset against other income, they get carried forward to be used once profit begins. The losses could be very substantial, so it is 'jam today' for the government but not for future governments. And for owners paying some expenses from tax paid income there is a strong incentive to look for ways to reduce liability.
I think it would apply to most first home buyers. The Kiwi way, in today's high priced property market, is to work your way up the property ladder to be able to end up with a family size home in a good neighbourhood. In fact trading your way up the property ladder is the only way for most (without wealthy families) to be able to get a family sized home.
As there is obviously no intent to earn income behind an owner-occupier's decision to buy a home, most must purchase with the intent to sell to leverage their capital to use for their progress up the property ladder.
However it is another very subjective matter to actually prove intent in individual cases at time of purchase.
Bearing in mind that new KS members today are overwhelmingly young people starting out on their life's journey, I agree with kiora that the default should be a growth fund. People can then "take a little responsibility for what they do" by lowering the risk profile if they so desire
Experienced buyers, or those getting knowledgeable advice, can demonstrate intent readily enough. Often by documenting intent in emails to solicitor or accountant at the time. That would normally work unless it is clearly incorrect.
A friend bought a small place and rented it to a family member. Next minute that household changed from 1 person to 3! Sold and a bigger place bought. Easy enough to prove intention that time if asked. No request from IRD so far.
"Growth fund will go down more often"
It may have higher volatility but go down more often?
If the right one is picked it is more likely to go up more often and by larger amounts than so called "low risk" funds. In my view the default funds are have a likely outcome of leaving the investor poor at retirement
"Inland Revenue is cracking down on residential property investors who have sold without paying tax on the profits."
https://www.stuff.co.nz/national/300...ng-bright-line
Last year we bought the house 4 doors down from our principal residence. With the conveyance person filling out the forms, she queried us on 'intent' if we were really buying that house as a 'personal dwelling' knowing she had previously changed title of our house to our names. I thought this was quite interesting but she accepted our reason for purchasing that house last year. The full intention for buying was to provide a home for wifey's parents. Their financial situation did not permit them to buy the house outright in their name so we wanted it on our name. She accepted but informed us that IRD can check on that ; apparently they must of accepted.
I find it interesting as in Canada, there is only ONE house that is a 'principal residence' ; you can not have 2 places with that designation on the tax filing. So if IRD is really cracking down on people selling homes, at best, they're only after those that buy into as a business, renovating, flipping, etc. Clearly in our case we collect no rent, the inlaws use the place as their own and maintain it as their own. Their mail goes to there. etc. Should we feel guilty because such a move could never be done abroad?
and after all, bright-line tests really don't mean much in the realm of retirement planning. Everyone buys a house and treating it as a long term investment (no different to Kiwi Saver), is not going to sell within 5 years.
I don't think you can have multiple primary residences here either.
The house you brought in your name for someone else will not be your principle residence and will be covered by the brightline test.
Will mean nothing if you don't sell or if you sell after the brightline because the brightline is just a very strict interpretation of the intention test.
We don't have a CGT (exempting PPOR or not) whereas Canada probably does so the PPOR test is even more important there.
In Canada there is no test. The rule is clear - 'primary' = one
There is no exemption of tax on the gains when selling a non-principal resident home either which means, there's not point of any bright-line holding period ; it's irrelevant.
If IRD wants to be greedy, they can do what the CRA does in Canada. If a portion of the principal resident home is rented out, then THAT % portion of the home will not have tax free capital gain. So if the basement works out to be 33% of the rented area of the entire house, then the owner of the house when it comes to selling (and if the place is still being rented), will have to pay CGT on that 1/3rd of the value of the home. The rental income from the suite is taxable income too. So there are many things that the NZ gov't can do to churn in more tax revenue. It all depends on the NZ politicians willingness to pay taxes on their property investments.
As far as IRD's concern, there is a key difference when you report your 'intent'. If I said we bought the house as an "investment" (and there is a tick mark box that describes what the purpose of buying the house was), then a brightline test would be less meaningful. Even after 5 years IRD can still come back to say you 'bought the house as an investment' and therefore, there is intent for profit, and therefore, taxes should be paid. People do not make 'investments', just like investing $ into a business, without the expectation of making a profit.
How about this distinction? The individual person buying shares is expecting a gain on their investment. Then why is it, the capital gains from buying NZ shares are tax free when buying foreign shares, are not tax free? IRD uses 2 kinds of measuring sticks for the same asset class but when it comes to investing in houses, it doesn't matter if they're NZ residential homes or foreign homes.
We don't have a CGT so what Canada with theirs is moot.
We have an 'intent' test which can turn your gain into income.
We also have a more specific form of the intent with the 'brightline'.
People do invest with the expectation of making a profit but that profit could be capital or income (the intent).
A person buying shares may be expecting a 'capital' gain - or they may be expecting dividend. Capital gain isn't taxed if you are expecting dividend (which is taxed as income).
The FIF rules came in because overseas dividends are so low (mostly) that you must be expecting a capital gain - so they made a rule as such.
With property, it could be said that for many properties the expectation of making a rent profit is so low that the only rational explanation for buying the 'rental' was for capital gain and therefore that must be your real intent - and tax them.
It could be said and plenty do say. But do they take into account the fourth dimension, plus changes of rules, laws and compliance since purchase.
More than 60% of rental property owners declared a profit in tax year 2018. The only rational explanation is that the intention was income not capital gain. Right?
With ring fencing of rental losses now in place, it is likely that more landlords will reduce rental losses by increasing rents and keeping maintenance to essentials. As otherwise they are dipping in to their own tax paid pocket to the tune of over $8000 average (tax year 2018 again). And of course the faster they get to break even point the faster they can use up their carried forward losses and consider exiting the sector.
I am sure those consequences were completely expected by the government.
I wouldn't say that that was the 'only' rational intention - so no, not right.
You get to decide how much rent to charge up to a point - just because you want to make more money doesn't mean that the market will bear it!Quote:
With ring fencing of rental losses now in place, it is likely that more landlords will reduce rental losses by increasing rents and keeping maintenance to essentials. As otherwise they are dipping in to their own tax paid pocket to the tune of over $8000 average (tax year 2018 again). And of course the faster they get to break even point the faster they can use up their carried forward losses and consider exiting the sector.
I am sure those consequences were completely expected by the government.
Rent isn't a 'cost plus' thing - it is 'what the market will bear' for most landlords I have come across (and being in the 'game' I have come across many).
Actually I think the NZ dividend yield was the outlier being quite high. That is probably for a variety of reasons including a high payout ratio of profit. This helps result in underinvestment in business, lack of productivity growth and many NZ businesses ending up being foreign owned (Last company please turn off the lights at the NZX?)
With interest rates on term deposits less than 1%, the net rent yield on investor housing is not looking so puny!
Wasn't that your argument? Low rental return so owners must be in the game for capital gain? So, if making a rental profit owners must be in the game for income?
The market is bearing quite a lot at the moment in many locations, due to costs, risks and shortages. One bedroom flats in my suburb renting fast at $500 pw or sometimes more. Crazy, and definitely cost plus. At least the one next door to me is.
I see what you're saying - I didn't say that if you buy to rent at a loss the 'only' rational reason is that you are looking for a capital gain but it is certainly a strong argument, and one that IRD may look much closer at (something that they could do without any policy changes).
Have a chat to the owner of the place next to you and check that they have worked out their costs, expected profit and turned that into a weekly rent figure - irrespective of whether someone can afford it or not.
People have many (or more) of the same cost issues on the West Coast of the Sth Island but the rents are going down - cost plus isn't working there because people aren't willing to pay the rents (because of supply they don't have to).
I put my rents up in-line with local changes even though my houses already met the Healthy Homes standards etc.
Shortages drive the price much more than costs.
Trademe's October rental price index does show West Coast rents (asking prices) reducing - down 6.7% yoy, not that much in dollar terms. Every single other region is up, several close to or even well over 10% yoy. (Gisborne region unknown.)
Increased cost, compliance and risk will not encourage people to stay in the sector, or build new.
A theoretical question.
I presume banks will not agree using equity in your home to invest in shares? or am I mistaken? But if I went to ANZ or Westpac and indicated that the money would be used to buy their Shares (WBC or ANZ) what would the response be? They could hardly say sorry buying shares in your bank is too risky??:)
With what you have written I guarantee you that the IRD did not accept this property being your PPOR or "personal dwelling", your declaration is irrelevant and if you sell this property within 5 years the brightline test will apply to the sale of this property.
"Did you live there for at least 50% of the time that you owned the property?" - this simple question determines if you need to fill in an IR833 form or not.
If you don't believe me - check with your chartered accountant.
Banks generally don't care what you do with the money. In fact they often grant an overdraft facility without detailing the purpose intended for using the funds. What they do care about is the security you are prepared to give them. A mortgage over a residential property is their preferred security.
Yes you can and I've been doing exactly that for many years ..first I used a debt free section as security .. then equity in home ...funds loaned to my personal trading company first with SBS then ASB ,ANZ and now Westpac... at present l just over 250k ... mostly fixed 2.59% small amount floating ... with these low rates hardly an issue and my small vending business (also held by the same company ) pays all outgoings like bank interest
As to how much the bank values shares ...very little 5% (=95% risked value) is want I've been told (Vs Res property 80%) ... so even if you own the banks shares they still don't give any value to the investment which IMHO is crazy ... till you see why ... its all about security... ie you can't just get-up and take your house to some far off land ... but you could transfer all your shares into a foreign holding company and take-off over to some beach on the other-side of the world then cash out and gone..etc
Wow, so should we steer clear of all houses?
Stuff have not lost their skill for click baiting as many readers as possible. When you click through to the actual article, the story changes somewhat!
Maybe they should package climate change as another "mea culpa" theme along with their pieces on Their contribution to racism in NZ.
After all, the adverts in their publications, which are fed by their click-baiting screaming headlines have helped foster a culture of planet-affecting mass consumerism.
https://www.stuff.co.nz/environment/...-years--report
The person that did both of our houses insisted yes, IRD can contest having both places as listed personal residence. However, my argument is this (as I tried to explain before). How is it in NZ there is a silly 'Bright Line Test' of 5 years which entirely proves ineffective to taxing any of the capital gains when the houses can be sold every 5 or 10 years? It again as I explained before, goes back to the "intent" of buying the houses (as 'investment'?). From my Cdn experience and understanding, the definition of an investment (which the Cdn Income Tax Act does define); derives income and or gains ; and therefore is subjected to taxation. When I see the word "Investment" on the IRD declaration form as one of the reasons for buying the house, again, that tells me IRD can some day in the future tweak the rules and subject 'investment' in residential properties as taxable income. You have to questioned the whole framework when you fill out these declaration forms and what possible future changes could occur.
Therefore the accountant doesn't care if you've held the house for longer than 5 years unless you've indicated 'intent' that the house was acquired purely for financial gain.
Bank definitely do care where the funds are going!! It's all tied to the interest rate. I see mortgage rates at 2% for the 1st year on homes, yet I know 1 person that had equity in their current home but was unable to get a mortgage on a more expensive home because he had 'no reliable source of income'. So in the aspect of security, generally the bank takes a MUCH higher priority on "how you're going to pay it back" and little care on what equity you have.
As I mentioned before, go ask the bank to borrow funds to invest in the share market @ near mortgage rates and they'll gladly show you the exit door. After all, that's why brokerage firms charge much higher margin rates.
They care less about where the money goes and more about how you can pay it back AND what it is secured over.
Go to the bank, ask for a loan for a big holiday, show that you can pay it back and offer them adequate security - then use the money for shares.
When brokerage firms charge higher margins are they securing the loan against property? Maybe that's why they charge higher margins.
It's the share investment culture in NZ that put extreme emphasis on dividend payout vs letting the shareholders retained earnings grow on the balance sheet. Basic accounting is when the book value per share grows, so will the share price on the open market. This is the key reason why Buffet's Berkshire Hathaway never pays a dividend because it's more tax efficient to the shareholder. As he stated, if the shareholder wants an income stream from Berkshire, then go sell a 'portion' of their shares. If this was done in NZ, the capital gain would be tax free but somehow, there's this expectation of dividends (which is taxable income); and let's not get into the complication of 'imputed' tax dividend credits for which most NZ companies don't issue at a 1 for 1 credit that a tax free capital gain would have.
Agree NZ companies will always be under invested under this dividend expectation model. The Warehouse Group has been doing this for decades ; draining after taxed corporate profits by paying into a dividend paying policy ; while on the same hand, borrowing at much higher interest rates ; from various sources like bond issues to the worse (as Buffet would say); by issuing more shares (nothing is more worse at eroding the value of existing share holder value than by diluting their share ownership through share capital raising).
Last company I recall that turned off the lights to the NZX? That was Xero and they had clear legitimate reasons for moving to the ASX. Meanwhile, the NZ Xero share holder (or managed fund) went from a tax free position of owning Xero shares when they were on the NZX, to a position where their Xero shares (or any foreign company) listed abroad would be subjected to FIF.
That's not entirely true. As I said before, the primary indicator is how you're going to pay it back. In the case of a mortgage ; they're so critical to the house you're buying that quite often they won't accept any building inspection report. Some banks require their own vetted building inspectors but the overall critical factor is the house "must be INSURABLE".
Now take the same funds and buy shares? Show me where brokerage accounts in NZ are insured? Are the share investments insured? Nope - even cash in NZ banks have no depository insurance like the US & Canada have.
Anotherwords, all the equity you have means nothing to the bank if you have no income. Even pension income is not factored in because they look at your age. I'll have to say age is a bigger importance than the equity itself.
Which bit is not entirely true?
That they don't really care what you do with the money?
That they want to know how you will pay the mortgage back (wages etc)?
That they want to know that if you don't pay it back they have sufficient security over a suitable house?
Maybe my post wasn't clear - by adequate security I was meaning a house (one suitable to the bank (insurable etc)).
@dobby41:
The question lies in what the borrowed funds will be used for. I know 1st hand of a friend (on pension) that has been mortgage free for some time but the bank would not lend him a mortgage on a larger place, despite having the equity of a fully paid home. Their reason was clear; 1) no reliable source of income & 2) his age. While banks aren't really allowed to discriminate by age, the prior is the key reason for rejection of mortgages.
Take the case for house & land package builds where the banks make payment under 'progress payments' to the builder. Changes to the housing plans / variations are red flags as they need 100% clarity what the extra funds (or where the funds go?) will be allocated to in the building process. In this scenario, no bank is going to give 100% of the funds and let the person project manage & choose how they spend it without formal disclosure and contracts.
On a slightly different issue, i'm not at all impressed that almost all the banks in NZ (except Kiwi Bank) are foreign owned. That is, the profits they make are to the benefit of the shareholders abroad. I'm not saying there should be laws to discourage foreign ownership but I do think NZ is way behind in terms of shifting from non-productive 'real estate assets' to investing in more liquid assets like shares in business all over the world. However, our tax laws discriminate dearly with preferential (or lack of tax) on real estate vs more productive assets like equities.
Back in the day, when NZ had a "brain drain" and there was more emigration than immigration, there was a joke than the last person to leave NZ should turn off the lights...Seems incredible today after so much population growth due to migration.
MET recently had its light on the NZX extinguished. I don't know with XRO, but many Australian listed companies are exempt from FIF rules..
Maybe you can clarify something for me - how are equities productive?
Buying initial shares in a new venture is productive but after that the company doesn't get a cut from the trading so how do they add to the company?
Sure, if they make another equity raise it helps to have a high share price but that doesn't happen a lot.
A rental property could be considered productive - they produce a lot of ongoing economic activity from property management to repairs and maintenance.
I didn't have a mortgage on my house until bank told me they had a special offer. If I took minimum of $150,000 or more (revolving credit) there would be no fees, so I took it. No discussion about where I would use it, std home rates. Problem is I can't be bothered using it. Those days are gone.
There's a lot of inconveniences owning a rental property ; the maintenance and rates, insurance, expense that eats the return on the rental income. Where does this leave in terms of overall productivity? Not a lot compared to ownership of a business that allocates the wealth in all different areas. Specifically if one that can be exported (no you can't export the land and house it sits on in NZ abroad). So from an economic potential, there's no way a house can out beat the productivity potential of tangible & intangible products that can have a global market exposure.
But don't take my word for it. Have a read below that puts NZ's productivity at the near bottom:
Or, and the economic issue that mostly drove the creation of this blog, New Zealand’s dismal long-term economic performance. In short, productivity growth (and the lack of it), and our continued decline relative to other advanced economies...
Sadly, the only realistic interpretation one can take is that the IMF thinks that over 2019 to 2025, on current government policies, New Zealand’s productivity growth performance – labour productivity and MFP – will be simply shocking. Most probably negative – the only way to square falls in real GDP per capita, unemployment returning towards normal, and a reasonable level of investment – and almost certainly far worse than in almost all other advanced economies, and especially far worse than the performance in the countries that were aiming to close gaps with the OECD leaders.
https://croakingcassandra.com/category/productivity/
Perhaps NZ's huge preference in owning real estate assets is part of the reasons of NZ's low productivity? I would believe so.
Are you suggesting that all the houses in New Zealand should not have owners? Obviously that's not possible, so should they not exist at all? Perhaps all house owners should be compelled to own their own business, or be forced at gun-point to buy several thousand dollars worth of shares as well. If you don't think real estate should be preferred by so many, maybe once they have purchased some flats or something, they could be forced to attend a course in learning how to hate residential investments - although it soon comes quite naturally.
Young Sgt Pepper remembers the first tenants who rented my Parents flats in London St Dunedin in the late 60s. A couple of female medical students, completely trashed their flat. My parents were justifiably outraged, certainly put Sgt Pepper off being a residential landlord. Most people are fine, but some are crazy
I'm stating in NZ, there's an exceedingly HIGH proportion of landlords (or people owning multiple houses) that serve to the low income earners that have no choice but to rent. The impression I get in NZ - when one speaks of investments, they talk none other than rental properties. That's how the rich get richer. Coming from Canada where their climate is extreme, houses are a necessity issue where the gov't have made it clear; don't turn houses into a commodity of profits but if you do, expect to pay dearly in taxes. Maybe Ms Ardern could learn something about the Cdn tax system as there's no shortage of people owning their OWN home. But certainly no where near as any of the mom & pop / landlords we see here in NZ. That's because the Cdn gov't has made investing for retirement through the share markets and unlike the taxable gains on a house ; pension / retirement plans practice 'deferred taxation'. Something few financial advisors in NZ know about.
Again the issue is simple and i'm not raining down on those owning multiple residential properties as their means for retirement. I ask why is it only the rich in NZ, on most part, get the tax advantage by owning residential properties while for the middle class, the NZ gov't throws them a doggie bone (a la Kiwi Saver) which is taxed more ?? I remembered clearly, Ms Ardern few years ago in her campaign that "NZ needs a more fair tax system". Now her motive has changed to introduce no new taxes (apart from another tax bracket on the higher income earners).
One gauge of productiveness would be the amount of taxable income produced from your investment.
When you buy a second-hand house or shareholding, your investment is in an established business, and the previous owner then has the settlement money to reinvest into another project.
How much of your purchase price is for the purchase of residential land? High land valuations would mean more of resources would be diverted from productive aspects or improvements.
@SBQ - I agree with your red and green synopsis and post.
There is a lot of hassle owning a rental and when you have several you get someone in to manage that hassle - this pays wages for PMs, maintenance, improvements. All this contributes to the productive economy.
Owning a business is something most don't do - they own shares.
This thread is shares verses property - not business verses property.
I buy a share and I have no hassle - I don't have to do a thing. No productive output at all.
If I buy in the IPO I might be helping to get a new business off the ground - useful. But from then on any share sale is just rearranging what already exists.
Which of course applies only to the original share or initial offering. After that it's just a matter of swapping a bunch of scrip for a bunch of money. The many millions of dollars which will be transacted today will not affect economic activity or productivity to any great degree.
Which was my point.
Yet people keep saying that rental housing is not productive (in that people should get out of rentals and put their money in the productive economy) and imply that the stock market is part of the productive economy.
You could argue that rental properties provide more economic activity (maintenance etc) than shares (keep in the bottom drawer).
The way I see it is that it is the workforce and the improvement to the land, and the ability to produce goods and services therefrom, that is the productive part of the investment. Whether that is the purchase of a rental property providing an accommodation service or shares in a company.
Just to clarify my previous post...The purchase of shares (in an already established business) is still a productive investment.
However the person, who sold the shares, may decide to invest their proceeds in a non-productive or less-productive investment. For example they may subsequently invest the proceeds in a bach/crib or an expensive section to landbank.
It's hardly a productive investment if the ownership of the shares simply goes to a new owner. It is the original purchaser, whose funds go to the company, that makes the productive investment. What the vendor of the shares does with his freed up capital is hardly relevant to the original deal; although if he chooses another IPO then it could be considered productive.
Without a liquid share market, it would cost companies more to raise capital and people would be less likely to start them. Would you prefer to invest money in a company where you will be able to quickly, easily and cheaply sell your stake at a later date, or one that you will struggle to offload?
When we buy shares we contribute liquidity to the share market and this makes it a tiny bit more rewarding for people to start businesses, and a tiny bit easier and cheaper for existing companies to invest in making themselves more productive. This effect is obviously more direct when we participate in capital raisings, but every little bit helps.
Buying an existing house has no such positive externality and only serves to drive up the price of something we all need.
Equally, and just as silly - 'It's just as well there are people around who don't put their money into shares and instead buy real estate, so the building does not have to be dismantled and the materials returned for a credit when the original developers wants to end their involvement.'
It is unlikely that buildings would be dismantled as the cost of dismantling may exceed any sale proceeds of the second-hand materials.
Anyway the point, which you may agree with, is that a subsequent owner of a business, building or shares is an investor in a productive asset. The product from which is taxable except in the case of a residential building occupied by the owner.
Companies range in complexity and may or may not own buildings and land.
They may have other assets, staff members, goodwill and intellectual property. Luckily new shareholders mean a liquidation is not necessary and the productivity of the existing company is kept alive.
Or a small business?
https://www.stuff.co.nz/business/123...ns-than-houses
I thought one had to start the business for it to be a productive investment. Buying a second hand business, or buying a second-hand shareholding in a company that runs a business, was not productive. However, in addition, is it also if you buy an established business and work in the business too., then it is also productive. If you buy an existing business but get a manager to run it, then it is not a productive investment. Do I correctly understand the point (which I disagree with) you were making previously?
Starting one is the best way but I expect that if they brought an existing one they would probably add to it.
You are pushing the suggestion that I made (to start the debate) but getting an existing manager to manage it is similar, but not the same, as buying an existing share. In a small business, even with a manager running it, you probably add to the investment. With an existing share you only add to it if the company wants to increase capital.
I don't see investing in residential property as being non-productive - you end up paying a lot of money on repairs and maintenance (both of which help the productive economy). Yet people keep trying to say that property investment is non-productive?
I guess with residential property if you pay $1,000,000 for a house (land worth $700,000; building and other improvements worth $300,000) then you are getting a $300,000 asset which produces shelter whether you pay $700,000 for the land or $100,000 for the land.
Certainly when it comes to owner-occupiers, It makes no sense not to tax the net product of a residential property producing a net benefit (shelter) for an owner-occupier while fully taxing the net product of a business that produce a net benefit (income, ability to eat and clothe) to the owner-operator.
The initial investment or purchase of shares keeps the business alive when the start-up investors/shareholders wish to to retreat. What you may be referring to is subsequent injections of capital - or retention from annual net income - to maintain assets. In relation to a shareholding that would be retaining earnings within the business (which NZ companies are very poor at doing for various reasons.) NZ companies would also raise money from shareholders by way of a placement or rights issue.
It is if they were brought for dividend income
Fortunately the Prime Minister is up with the play. Or maybe not.
Put to her that people who invest in shares, for example, don’t always expect the value of that asset to go up, so why should it be different for housing? Ardern responded: “This gets to the heart of the issue of why so many New Zealanders turn to the housing market.”Ardern then walked off stage, having previously signalled she was taking last questions at her post-Cabinet press conference.
Whew, saved by the bell.
https://www.interest.co.nz/property/...-when-it-comes
" As Clint Smith notes, interest deductions at present are, with the exception of the thin capitalisation rules, generally fully allowable if incurred in deriving gross income. The deduction relates to the rental income that is being earned from the underlying property being financed.
However, as the argument for greater application of section CB 6 notes the economic returns from property are twofold. Firstly, in the form of taxed rental income and secondly in untaxed capital growth. The present treatment, therefore, gives an allowable interest deduction for both taxed and untaxed gains. "
https://thespinoff.co.nz/politics/08...+December+2020
I guess if it is government and central bank guaranteed then why would you invest in anything other than rental houses. Sadly some young people might see Jacinda Ardern as an advocate for youth but they would be sadly mistaken. She is little different to John Key as far as I can tell.
Out of idle curiosity, why are so many people so certain that the tax system is the best tool for solving the current housing crisis?
There needs to be reform in many areas not just tax, imo.
Ardern has more or less blamed the public for her failure to reform the tax system. She ruled out a CGT or Wealth tax. As Ardern's Party got a majority of votes, I am presuming that there may be more voters who think their self-interest is better served by allowing any housing issues to remain or worsen rather than reform the tax system.
https://www.tvnz.co.nz/one-news/new-...s-ive-listened
It isn't but the the tax system isn't right either.
CGT won't drop the house prices - may do as a one off but then off they go again.
Even with a CGT residential leveraged property investment is still the best game in town to grow your capital base (for the average punter).
While CGT may not solely fix the housing crisis problem in NZ, it will promote investment into more productive areas (as commonly seen overseas in Canada, Aus, US, UK etc). The table is so one sided in NZ that only a fool would choose investments non-other than NZ residential properties. The proof is clear ; look what happen since COVID came about and interest rates crashed. NZ corporations as a % of total of NZ's debt/GDP is insignificant when compared to real estate debt & gov't debt. Other countries don't game it that way. You get the principal resident home as a one off, anything more and the taxation (as how it should be) will be treated at the same level as making any other investment (ie share ownership).
Frankly i'm sick of the excuses of having no CGT in NZ. The TWG recommended it - why should Jacinda know better? It's like they're trying to find the be all end all 'single' fix solution when CGT was never intended to function that way to address affordable housing.
Earlier in the week I also heard another silly proposal of taxing in NZ (came out from Auckland Uni if I recall correctly). The person on talk radio explained that to address wealth inequality, the rich will pay a direct tax on their assets based on the bank's 'free market rate' which is basically at term deposit rates. So if a person had $500K in cash and was to invest into NZ residential properties, he/she may get a loan of $1M to buy a house, the new tax proposal is that $500K would be treated as if it was invested in the banks TD rate (ie the risk free rate) and that rate would be taxed at the individual's marginal tax rate.
personally I don't think it is the best tool. As has been pointed out on here, Aussie has a capital gains tax and their housing market is similar to ours. One thing the govt could do is reduce the central banks inflation target to 0%. As housing and asset price inflation is a result of their policy to raise prices across the board at 2%.
A capital gains tax could broaden the tax base and (I don't like to use the word fair as FP will attack if I use it) increase the perception of fairness as those with wealth benefiting from central bank and monetary policy would be seen to be contributing.
Good news on the demand side of the problem. Everyone keeps yapping about the supply side but if we closed the borders demand for housing would drop considerably and if I understood economics 101 correctly decreased demand should lead to decreasing prices.
https://www.interest.co.nz/property/...pared-year-ago
If the country just declared a man made climate emergency surely filling the country up with more people is not an appropriate response unless of course the govt is full of s**t. I think Greta called it virtue signalling.
"Home ownership rates have hit a 70 year low and those working in housing are not at all surprised. A new 150-page report from Stats NZ titled Housing in Aotearoa: 2020 reveals a grim portrait of the housing crisis."
https://www.rnz.co.nz/national/progr...it-70-year-low
Low interest rates encouraging more home ownership for an already limited supply.
As for returning Kiwis - my opinion is they are only the 'displaced' / lost their job overseas etc. returning to NZ. I'm not sure how much wealth they would of brought back but those that are well established overseas with a decent job, assets, etc. would have no inclination to moving back here.
That would be great if it stayed that way, not likely though. More people, more demand more consumption more growth, in population, prices and money supply.
The money supply would contract if population leveled off and becomes sustainable.
Doesn't seem to have affected demand for houses as you say. Mind you S&P 500 up last night on stimulus expectation and gold up as well which I would have expected to fall if everything is coming right.
I wonder if house buyers, share buyers, goldies and crypto might appreciate that each time central banks print it is getting larger and larger so I wonder if the frenzied buying is just a dawning realisation that dollars are risky and are a bad thing to hold. maybe not even a realisation but a natural response to what is happening. I wonder if this is what a currency collapse looks like with the price of everything shooting up as more and more currency gets printed.
Shares or Property? Maybe both or whatever you can afford while you can afford it.
Possibly a bit dramatic but seems to be the way we are headed climate emergency declaration or not.