Quote Originally Posted by artemis View Post
IRD says there are no tax advantages for residential property investing. In fact there is a big disadvantage now that residential building depreciation has been removed.

IMO it is not easier to invest in residential property rather than in, say, the sharemarket. It may, however, be harder to borrow to buy shares though of course plenty of people do. One reason people buy rentals rather than shares is because they have some understanding of property. (So they think, anyway, until things turn to custard.) Plus most people are concrete rather than abstract thinkers, so would rather see the bricks and mortar.

Disc - I have $ in both. Shares are waaaay less time consuming than rentals.
Depreciation was never available for financial investors and owner-occupiers of residential housing still enjoy untaxed imputed rental income return from their equity.

If instead of having (say) $500,000 equity in a rental house in Auckland, you had $500,000 in only NZ shares, I would agree with you. However you would increase greatly the risk of your investment imo...the returns from NZ shares being much more variable (historically) than returns from housing. That also ignores the fact that many residential real estate investors do borrow to leverage themselves into rental property, so on average the $500,000 equity would equate to owning significantly more assets. So (on average) each $500,000 owner's equity in rental housing reduces the government's tax-take much more that the equivalent invested in financial assets.

If you diversify away from NZ shares alone that is when you could encounter complex financial arrangement and FIF rules...taxation of capital appreciation (NZ bonds, overseas shares if worth more than $50,000) and then there is also the possibility of unrelieved double taxation (Australian shares etc.).