What change will we see to property taxation?

[tricha]

Yes, clear to the investors, but clear as mud to Government in power. have posted it elsewhere too, but here is an update:
listings in Waitakere since jan 09 up 27% now
listings in Waitakere since jan 09 up a whopping 52% now (M&D and small landlords)
listings in Manukau since jan 09 up 15% now
listings in Manukau since jan 09 up 30% now (M&D and small landlords)

So we have a big jump in listings, when the Govt regulates -

no depreciation offsets
no offsettings personal income tax losses.

Thats what my accountant reckons is going to happen.

Then property will fall by up to 24%, right or wrong ? As all marginal property investers dump, so lets do the sums.

A $300,000 loan on a rental, that returns $32O A WEEK. $16,640 Year income.

$21,000 interest bill, Rates $2000, Insurance $500, Repairs $1000, loss 0f rent $620. $25,000 outgoing.

A loss of $8,000 a year !!!!!!!!

Either rents need to go up and we know that will not happen.

Or the house price will fall to make it a viable investment.

[fungus pudding]

So we have a big jump in listings, when the Govt regulates -

no depreciation offsets
no offsettings personal income tax losses.

Thats what my accountant reckons is going to happen.

Then property will fall by up to 24%, right or wrong ? As all marginal property investers dump, so lets do the sums.

A $300,000 loan on a rental, that returns $32O A WEEK. $16,640 Year income.

$21,000 interest bill, Rates $2000, Insurance $500, Repairs $1000, loss 0f rent $620. $25,000 outgoing.

A loss of $8,000 a year !!!!!!!!

Either rents need to go up and we know that will not happen.

Or the house price will fall to make it a viable investment.

It's difficult to see losses being ring-fenced. That amounts to taxing someone on money they simply haven't got. Depreciation is different because although it's an expense, it's a non-cash expense. So I reckon they'll wipe or reduce the allowed depreciation and leave it at that. Riing fencing losses iss unworkable without bankrupting many investors, unless they grandfather it.

[Steve]

It's difficult to see losses being ring-fenced. That amounts to taxing someone on money they simply haven't got. Depreciation is different because although it's an expense, it's a non-cash expense. So I reckon they'll wipe or reduce the allowed depreciation and leave it at that. Riing fencing losses iss unworkable without bankrupting many investors, unless they grandfather it.

The FDR regeime is taxing someone on something they may not have got too. People squeeled at the start and now they have adapted to the nusience that it is.

Possibly there needs to be some form of ringfencing as just not allowing depreciation will not generate enough to cover any worthwhile reduction in tax rates. Ringfencing losses is workable, and it won't bankrupt too many investors as they shouldn't have been relying on the marginal tax benefit to make their property investment viable...

[minimoke]

S
Then property will fall by up to 24%, right or wrong ? As all marginal property investers dump, so lets do the sums.

A $300,000 loan on a rental, ....

A loss of $8,000 a year !!!!!!!!

I'm restrinign on commenting too much on the likely impacy on tax changes to property unitl I see the actual changes. But at this stage I can't help but feel the governement is acting once the horse has bolted. Sure, in the past prperty owneres did very nicely in a rapidly appreciateing market - and Govt failed to take their cut through Captial Gains Tax then. But thats IRD's problem then - and shouldn't be a problem for owners in the future.

But lets look at your sums - I don't see a 24% decrease. If you have a $300,000k loan your property is probably worth, say 10% more than the loan. Lets say $330,000. With the potetnial tax changes by your sums the owner is up for a $8,000 loss. To avoid the loss the owner puts the property on the market. But what will he sell at. He'll try for $330,000 cos thats what he reckons its worth - but he probably won't get buyers becasue they see teh loss situation. If he sells at $322,000 its break even for the new owner who might chance their arm on making on teh capital gain side. Thats only a 2.4% drop in value - not 24%.

Lets also not put aside potential rises in rents. At some point the see saw will rock to the benifit of owners. If existing owners sell out there will be fewer rentals available for those that will never be able to afford to buy. Few rental matched by incresed demand = higher rentals. There will be political pressure to raise Accomodation Allownces and other tax payer funding to assist low income and vulnerabel people with their rent. So teh tax payer will end up paying higher rents.

[beacon]

Lets also not put aside potential rises in rents. At some point the see saw will rock to the benifit of owners. If existing owners sell out there will be fewer rentals available for those that will never be able to afford to buy. Few rental matched by incresed demand = higher rentals. There will be political pressure to raise Accomodation Allownces and other tax payer funding to assist low income and vulnerabel people with their rent. So teh tax payer will end up paying higher rents.

Second that.

[JBmurc]

Lets also not put aside potential rises in rents. At some point the see saw will rock to the benifit of owners. If existing owners sell out there will be fewer rentals available for those that will never be able to afford to buy. Few rental matched by incresed demand = higher rentals. There will be political pressure to raise Accomodation Allownces and other tax payer funding to assist low income and vulnerabel people with their rent. So teh tax payer will end up paying higher rents.
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Yeah I agree in the fact rents will rise if what tricha accountant is right but enough to make it as good as before the new changes

but also investment properties will fall in value as investors sell down their new liabilities which at one time reduced their personal tax bill to now become an extra cost with only hope of increasing rents an capital value

also for ever seller their has to be a buyer how many renters will be able to get a loan unless prices reduce or their incomes increase-NZ has the second worse income to household debt

Personal

[minimoke]

The Budget will be intersting - and so will the consequences. One consequnece is that changes may encourage people who haven't done so already to look at Australia. If you are "forced" to sell your NZ holdings then it might encourage people to move to Australia. They still get the $7,000 cash up front from hte Ozzie taxpayer and for many "first home" buyers there is no stamp duty. And we'll have 15% NZ GST compared with 10% in Oz. It may be that perhasp a more enticing future across the tasman wil be the thing that creates an influx of properties onto the NZ market driving down values. And if people move off shore then there will be less demand for the remining housing. But teh east coast of Oz still has some of the moust expensive3 Housing Affordability globally so that may create the anchor that holds people back in NZ.

[loofa]

The change in rental costs will only be the result of net demand. Every rental sold up will either be occupied by a new renter or by an owner-occupier who may have been a renter.
So no net change there.
Migration will have an effect. More going to Oz (lower unemployment there) will reduce demand.
Lower immigration from UK (the lower pound) or net flow from Asia may have an effect.
The major influence has to come from income changes (wages or welfare).
Low or nil wage rises mean that landlords have to bite the bullet on rents.
Every other reason for change in rents is minor compared to the ability to pay that rent.

[beacon]

landlords have to bite the bullet on rents.

Recent Data on real rents suggests they have already been biting the bullet for the last 3 years. Maybe its time they start biting themselves, as flesh is currently the cheapest commodity around, and I suspect they haven't got the firepower left to buy any more bullets ...

[Billy Boy]

I feel the housing market in general is going to have to do more bullet bitting, including landlords.
It is obvious that NZ'ers love affair with rental housing has got to be reined in. Too much money has/is going
into a non productive inefficent sector. Govt has got to redirect NZ'ers mind sets into "productive, saving
type ventures". There will be a retune in the rentable establishments, away from the single dewlling toward
flatting complexes. Single dwellings are no longer cost effective as there are allready better investments and
Billy Smurf (and others) will keep it like that.
Ring fencing ??? yes
Capitial gains in the future ?... watch this space
Landtax.... yes, most probably aimed more at the residential sector (empty sections)
All too hard to administer ???.... Bullsh*t
It will not all happen o/night, But will be slowley introduced.
Govt spin doctors will slowly ramp up after May.
I often wonder why a tax break is not offered to various type of saving accounts
i.e. Bank deposits, debentures, coy notes etc etc...

BB