Capital Gains Tax & Ring Fencing Losses, and more! …What does all this mean for Property Investors?

There are a lot of things happening out there at the moment with residential property. These can be divided into two separate groups.

  • Changes (trying to be) being made by the NZ Government
  • Natural Market Cyclic conditions

Let’s look at what the Government are up to and see how it affects us as property investors. Something the Government has successfully bought in is Ring Fencing legislation which took effect from April 1st (which is an appropriate date!) This means property expense spending will now be ring fenced, also rental property losses will not be deductible against other income such as salary, wages or business income.

Who does this affect most? Mainly people who purchase negative cashflow property and then claim the losses back in tax, these people are your typical Mum and Dad investors who make up over 90% of active investors. And who drive the market.

For the other 10% of investors who only purchase Positive cash flow property (Yes that’s us!!) it doesn’t make much difference, its business as usual. We don’t claim back losses because with positive cashflow property,… wait for it …there are none!

An even bigger talking point around NZ at the moment is Capital Gains Tax , not only with property investors, with everyone and anyone who owns any type of property, whether it be a farm, business or property investment.

Unfortunately CGT is a punishment for anyone who has worked hard, saved hard and taken risks to get ahead in life. Some are calling it an “Envy Tax” from the poor for the rich.

Currently nothing has been decided but it appears if it does come in the family home will be exempt. And for the rest of us it will be a mountainous can of worms being opened up.

1) Who gets taxed what?

2) Are all land & property owners taxed the same rate?

3) Are just (Evil) residential property investors taxed 33%, and everyone else a lot less?

4) How do we measure the gain, will the valuation industry boom (at our expense)

In my own opinion I think the Government will realise CGT could backfire hugely for their own popularity and cost them at the next election. I actually don’t think it will happen. (Watch this space)

Natural Market Conditions, here’s what’s happening.

Auckland;

  • Housing Stock levels in Auckland increased over 30% (15,000+)
  • Auction clearance rates have plummeted, barely selling 30% of auction stock
  • Over 7% of vendors selling are losing money from what they bought property for
  • Agents departing the industry in droves
  • Huge price decreases happening from increasingly motivated vendors

Rest of New Zealand;

  • Housing stock levels have increased 25%
  • Prices have ‘peaked out’ in most areas
  • Buyer enquiry has started to drop away
  • Christchurch market ‘flat’ with low rents and property prices compared to rest of NZ

Summary;

New Zealand’s Boom market has come to an end and there are a lot of people sitting back waiting to see what the outcome will be with Jacinderellas tax working group and the end decision on a Capital Gains Tax.

While all this is going on in NZ, Australia’s housing market is in steady and rapid decline, especially in Sydney & Melbourne which have fallen 12% & 10% respectively so far, they had the dizzy price increases which Auckland had as well, so don’t be surprised if Auckland’s price decline gains momentum and follows our Aussie friends.

For all the Mum & Dad investors this is the period in the cycle where they will go quiet for a few years. Incredibly quiet if a CGT comes in. Some you will never hear from again.

For us, the investors that only buy positive cashflow properties we will have an increasing supply of great deals being presented to us. Mainly from fools who paid far too much for an investment at the peak of the market believing the boom was endless. These fools are buying overpriced property right now!

We are telling our e-coaching clients to sit back and be patient. Immerse yourself in the e-coaching modules. This is the time to build your investing knowledge so when the media feedback is gloomy and prices are dropping, you will have the courage to go against the grain and dive into the pool where no one else is swimming, and build your financial future.

Happy Investing

Shane Allen

 

 

 

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