Planned changes to tax rules for residential investment properties have left a question mark hanging over the status of so-called mixed use properties that have a combination of residential and commercial space.
The changes mean that owners of a residential investment property will no longer be able to claim the interest portion of their mortgage payments as a tax deductible expense, and if they sell the property within 10 years of purchasing it they will be taxed on any capital gain (commonly referred to as the bright-line test).
The new rules don't apply to commercial investment properties such as shops, offices, warehouses and factories, which will not be subject to the bright-line test and their owners will still be able to claim mortgage interest as a tax deductible expense.
But the Government is yet to decide how the changes to interest deductibility rules will be applied to mixed use properties, if at all, leaving thousands of investors up in the air on the issue for the time being at least.
Mixed use properties are surprisingly common and are growing in number.
Older suburban shops were often built with flats above them and more recently there has been a growing trend for live/work arrangements in new developments.
On the edges of the CBD this could be a studio or office suite with a flat above it and in the suburbs it could be a workshop or warehouse arrangement, perhaps with a showroom or office space at the front, also with an attached flat.
They are often popular with people starting up a new business, who defer home ownership while they get their businesses established, and in the meantime find it convenient to live and work from the same premises.
The recent trend towards working from home will likely increase the popularity of such arrangements.
But where does that leave the owners of such properties in relation to their tax obligations?
Inland Revenue has already decided that issue in relation to the bright-line test, because that became effective for properties purchased from 1 October 2015.
According to IRD, the classification of a property as commercial or residential (where it has an element of both) depends on its "predominant" use, and that largely depends on how much of the land area, or floor area in multi-story buildings, is devoted to commercial or residential use.
That means a property will be classified as all commercial and therefore exempt from the bright-line test, or all residential and therefore subject to the bright-line test, even if it has a mix of residential and commercial uses. There is no Mr In-between. (A more detailed explanation from IRD is available here.)
But the Government is yet to make up its mind about how the new interest deductibility rules will be applied to such properties.
According to IRD, that will be worked out as part of the consultation process that will precede the necessary legislation being introduced.
It could adopt the "predominant use" concept that's used for the bright-line test, or it may go for a formula for apportioning deductibility based on the floor area or rental income generated by each type of usage, or it could just exempt them altogether.
In the meantime investors of mixed use properties will have to wait and see.
But one thing seems certain.
Whichever way the Government decides to go, it will almost inevitably create more work for the accountants and lawyers.
That lot never go hungry.
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126 Comments
It's been an eye opener following a NZ Property Investment Facebook group. The amount of comments already made semising on how to avoid the interest deduction is astonishing. It's ironic too given they've been saying they'll simply increase rents. Commercial property will be probably the new go to and we'll see families living in factories or offices. The property investor will of course still be doing a deed to society by housing these people however.
For decades various preceding governments and bureaucrats have lamented a very poor savings record by NZrs. And then a 180. Record low interest rates, NZrs were basically being asked to borrow to spend to spur the economy. Come CV19 even lower interest rates. And so it soon came to pass that said borrowing & spending was unsurprisingly directed into housing. Solution by government and bureaucrats. Tax ‘em.
Wouldn't it be better to split out percentage of commercial vs residential along the lines of how home office expenses are calculated by square metre rate
Increase rents to end up paying more tax. I don't think they grasp how tax works.
One developer I've talked to just shrugged his shoulders and will end up paying a bit more tax. Not a big deal if you are over leveraged.
A different story with a friend who owns one rental. That friend now has to work out whether it makes sense to keep the rental and is seeking advice. I pointed out some investments that may provide better return with less cash flow and tax problems.
Commercial property investors must be peeing their nappies too , following the sucker punch Robbo hit house investors with ....
.... fact : house prices have risen 47 % across NZ since Labour were first gifted the election win in 2017 ...
Second fact : " read my lips " , they repeatedly promised no CGT , no new taxes at all ... that's definitive ....
... relax then , trust them , be kind ... nothing to worry about .... hmmm ... better change my naps ....
well now as sung the Doobie Bros, “what were once vices are now habits.” promises that should never have been made have been broken, slippery tongue and all, by this government quite readily. They now can see that this they can do. Watch this space, more to follow. Hot phone line to the Greens. Any ideas?
. . by the time the populance wake up to the fact that Robbo's Rules are just smoke & mirrors ... that they've conned & lied to us , again..... and the political polls drift down a little more , Queen Jacinda will pop up & announce her wedding date to Prince Clark ... she will once again enthrall the nation from her Throne of Kindness ... we will spend the remainder of 2021 in a Womans Weekly fog of photo ops and glowing pictorials ... sigh ... ain't she loverly ...
Democracy
Very good so you were given the privilege of being accepted into a private group that was set up to share knowledge and help educate people to achieve their common goals as some kind of mole to report back on public forums such as interest.co.nz.
You will be pleased to know then that there is already a very easy work around for those that have a diversified investment portfolio that means a interest deduction (a legitimate expense of income) can not be denied unequivocally. Try as they might the socialists will not be able to steal middle NZ’s hard earned wealth after all.
Yes reporting back on all the deep dark secrets, beware the mole is amongst you...
Nice story. Will see how your theory plays out at open homes and actions. Word on the street is investor activity there is waning
Try as they might the landlords will not be able to steal middle NZ’s hard earned wealth after all.
Repeating but see no article or discussion on interest only loan which is the best action, perheaps next to being silver bullet in making speculators handicapped with cheap and easy money and a step forward in addressing the housing crisis by targeting speculators.
We have never been landlords but we know quite a few friends who are. They have properties with no mortgages and have owned them for many years and intend to continue as such. As far as we, and they, can see none of these new regulations will affect them. They also point out that basically,getting rent and paying tax on it clears them roughly $0.72 but in servicing a debt , a rebate on interest paid nets them roughly $0.28.
Since last announcement, lot of noise - the performance is for show only, as this announcement which were aim to help FHB , will not have any meaningfull affect on house price unless RBNZ act and acts fast.
Even property investor Nick Gentle is suggesting to ban interest Only loan. Suggestion is comming only now when their sensitive nerves were pressed - Happy realisation and RBNA and Jacuida Arden who are planing in May, should oblige and do as soon as.
"Gentle said the Government would have been better to require a larger deposit or ban interest-only loans if it was concerned about borrowing."
May be he is saying as mentioned that by targetting IO loan will not be hurrting genuine investors but speculators and is this not what government is trying to achieve.
Anyone wanting to use their own investment funds should be able to do so as they please.
If they want to buy rental property with their own resources - go for it!
But once it involves debt for any secondary property; that property ownership being in competition with other single property owners, the treatment of that debt and associated income should be assessed differently.
This isn't a new concept. I have a car that will go 250kph, but I'm limited by the law to less because it's in the interests of society that I protect them as well as myself. Otherwise, because it can go faster I should be allowed to drive it to its maximum.
Similarly, shelter isn't solely a business - it's a necessity. Recognising that will get us a lot further than trying to figure out (as others here have pointed out) "How to get around the New Rules!"
tks, pencil not sharp this morning.have edited.
"Fail to build public roads? Blame private race tracks."
A summary of the country's intelligentsia.
Foxglove....Of course many freehold landlords do not see how these regulations will affect them. As many of them are completely incapable of correctly assessing risk (in this case of a significant (possible) revaluation of their assets) due to their refusal to consider what is happening right in front of them and instead preferring to obstinately quote "the evidence of the last 40 years".
With the Govt signalling that they intend to revamp NZ so that property investment is no longer like fishing in a marine reserve and showing that they will put the average young NZer ahead of investors and their vocal and powerful lobby groups the value of their assets is at risk. Once this Govt has finished changing the landscape of NZ for the greater good by taking measures such as banning interest only loans, legislating to protect renters from continuing unfair rent rises and taxing homes in urban areas that are not being used for what they are needed then it is likely that mortgage free investors will be adversely affected if they ever sell. In my book (almost) anything that protects the poor from the rich and greedy is a step towards making our society a more inclusive and better place for all.
After the attempt by landlords on social media yesterday to band together to evict tenants on the coldest day of the year (I kid you not, check it out) illustrated that the rest of NZ is in a war on the scourge of property investment. There are laws against scalping tickets for very valid reasons and purchasing rentals is akin to this practice. Scalpers can say they are providing a service but it should be easily understood that to remove scalpers from the market is in the interests of the average NZer. The number of tickets available for sale will not mysteriously reduce and the same principle holds true for property. Time to put the average Kiwi first and send a clear message that from this day on scalping property will no longer be accepted. Buy your own ticket but do not buy additional tickets intended for others andhold those tickets for a while in order to profit from others less fortunate than you. The day has come where we must fight for our own NZ 13th amendment where modern day slavery is put behind us. It is probably the most critical thing we could do if we are really serious about addressing the inequality of outcome between races in our country. Break the chains.
... or , we could just boost housing supply around the country by copying the model that worked brilliantly well after the Christchurch 2011 earthquake .... and led to cheaper land , and cheaper house construction ...
Gummy..of course you are right, We should boost housing supply and slash demand through immigration as much as possible but in conjunction with getting rid of the nefarious practice of "house scalping", which is a significant driver of an exclusive, divisive society which contributes hugely to inequality of outcome for our Maori and PI minorities. Everything has been slanted in the (usually) wealthy, white investors favour at the expense of the poor (disproportionately brown) lower quartile renter. Time to make things right.
Robbo's suite of initiatives had not been offered to Treasurely for them to study , nor was there any consultation with the property industry ... it's a knee jerk reaction , off the cuff ideas . .
... is that how we want our country run ?
Gummy.. are you also advocating that we "consult with" sex offenders and rapists before we decide whether to change the rules around video testimony in court? Should we ask ticket scalpers what they think about the laws that ban their destructive, purely self-serving "business"? We want the country to be run in a way that benefits the majority of society rather than take undue notice from a few squeaky wheels bent on maintaining an unfair and divisive playing field.
.. woaaaah up there , champ .... no need to trash me out with that crap ... I'm talking about consultation within the investment community , and with Treasurey ... which used to be standard practice .... and let's lay this out : deducting interest expense is a legal business accounting procedure , it ain't a " loophole " ... Robbo has conned alot of people around here , but not me ...
Gummy...Just as molesters are the problem when it comes to sex offending, the property investor community are (a big part of) the housing and rental problem. Should we have consulted with people in the ticket scalping business before invoking laws and regulations against it?
... let's get back to the core issue , huh ... houses ... and the failure of this government to understand the basic problem , & the raft of solutions needed to get back to demand/supply balance ....
KS you cast a wide & heavy handed net. Landlords have been present since recorded time. They serve an essential” purpose too. Not everyone wants to or can own their own place of residence, reasons are plentiful. The friends I mention have owned, maintained and rented out houses, no more than two or three at any one time, since well before the boom times. As such they had no preconceived notions of huge capital gains. They just saw a pretty safe good yielding private investment, and when you consider the crashes of 1987, 2008, plus earlier the failure of companies such as Broadbank, Securitibank and on, plus government legislation stripping value of cornerstone shares such as Telecom or market rorts such as Feltex, who can blame them then.
ps. we came back from overseas in 2004 and there was then a surge in property values and part of that was the existing LAQC structure. In fact if you look at that as it existed then it was an actual enticement to borrow money, buy a property and rent it out. That then, I suggest is a root cause contribution to the scenario that has subsequently unfolded to the problems of today.
Foxglove..."no preconceived notion of capital gains". Come on man. In the 80s,as an uneducated 20 year old I borrowed hugely and bought Akld properties because I could see that everything was so unfairly weighted in property owners favour and against renters. It has been so obvious for so long (until now) that the huge capital gains were almost a guarantee. Just as if a ticket scalper claimed they bought ten concert tickets without realizing the value of the tickets would increase your assertions just do not wash.
There are even huge media publications like One Roof built on the premise of capital gain. Come on man, get real.
So in your “real” world every residence in NZ should be owner occupied. Suggest you get a reality check pronto.
Foxglove...maybe around 70% OO, 20% state owned and 10% investor owned seems like a mix that would be in the best interests of NZ as a whole. What do you think?
So 10% sex offenders / molesters is your preferred proportion ?
Well there is always going to be a need for property to rent. But in a free market trying to install and administer degrees of layers of rental types would be a bureaucratic nightmare. Would suggest only in a rigid dictatorship could these sort of accommodation restrictions be enforced. For instance the Bolsheviks did exactly this. I do not disagree entirely with your sentiments as to how NZ has got to where we are. But I think you cannot sound off at ordinary folk and blame them , when the government(s) opens doors of opportunity, for walking through them. As pointed out earlier the LAQC structure was a government initiative that full on invited property investors which inevitably included its fair share of outright speculators. To my mind any government that encourages its people to borrow to spend is nuts.
Foxglove...nothing really worthwhile comes without difficulties and sustained effort. Posing a bureaucratic nightmare is no excuse for not taking action to right the wrongs that are causing so much destruction to the fabric of NZ. Do you suggest we just put the housing crisis in the too hard basket and not bother to make the system fair. Doesn't sound very fair to me.
Haha,the old sex offender/property investor analogy.I've been waiting for someone to bring up that old chestnut.
There are quite a few on this site nowadays who need to have a lie down with a cool flannel on their fevered brow lest they really talk themselves into a tight corner.
Just heard some stats from MBIE .... I love facts .... Fact : 78 % of landlords own just one rental .... oh ... a further 16 % own between 2 and 4 rentals ... hmmm ... so , a mere 6 % of landlords own 5 or more houses ....
... are we to conclude that Robbo is using a very big hammer to smash a very small nut ?
Renters look out , the unintended consequences of Robbo's foolish policies are that you will pay more !
And most of those people do not want to be landlords. They want the capital gains tax free. My guess is many will exit.
Exactly. They joined for the massive gains and easy money. When the money becomes harder to get through tax. The up keep of a “healthy home” gets too expensive. Being compared to the arseholes of society constantly. Wonder what happens?
Bright line with a 39% tax rate to keep them from exiting :)
As you approach retirement age you become more risk averse and the stock market crashes, finance co rorts weigh heavily when your life savings are involved so buying a property to rent out is at the lower end of risk (Residential property is Tier 1 capital for Banks) and even though rents may yield less than other investments the lower risk compensates. In these circumstances I doubt capital gains are a significant factor other than a reflection of inflation to assess future rents against as such gains only crystallize on sale so replacement becomes an ongoing income question. In addition much small capital is borrowed against equity, albeit inflation derived value increase so if you stack the game against Landlords do not be surprised at the detrimental unexpected but predicable damage that follows. This deeply flawed legislation further stacks the game against Landlords and in favour of tenants and the IRD and will not improve house costs or availability only a reduction in demand and increase in supply can achieve that and the current clowns in the Beehive think they can achieve what King Canute failed at together with countless socialists who have since tried and likewise failed.
GBH, should we give Treasury 6 months to muck around modelling and predicting the effects, when every single prediction they've made in the last 12 months has been laughably wrong.
Good on Jacinda and Robertson, I'm pleased to see some decisive action.
If Jacinda and Robertson, could and gave taken decisive action, their passing on interest only lo and DTI suggest that have spoken just for effect with no real intent for if intent could have easily acted together with RBNZ or should atleast come out and clarify their intention.
. . if only to avoid " unintended consequences " , Robbo ought to have given Treasury a week or two to study his proposals , & offer feedback to him ... that's what they're there for ...
Me too.
Love the fishing analogy
It's a good day to fish down in Naki, what are you doing on the internet?
Marine reserves are Crown and Public whereas the houses people want to buy are private.
The analogy might be true if private investors are buying state housing and speculating on it- which I doubt so.
CWBW...sitting hunched over my computer playing online poker (with fish), while looking out the window at the lovely sunshine and sparkling sea. I am a victim of my own success!
I call that the rose tinted glasses effect with blinkers. ( FYI Blinkers are the things horses wear to stop them seeing anything that isn’t directly in front of them). By the time they see it, it’s gone racing by leaving them firmly behind).
The beauty of this policy is that it is de facto an attack on leverage, not speculation per se. These new rules have zero effect on the attractiveness of residential property to a fully funded cash buyer.
So in effect, it takes out interest only lending via another channel.
Try rocking up to a bank and getting an 80% loan to buy Spark shares. That's the distorted playing field between asset classes.
It's simple, Spark is a mediocre company. Any margin loan will be capped accordingly.
If you buy Westpac, it's easy to get a 80% margin loan.
That said, if you have difficulty getting a simple margin loan, I can't see how it will be easy for you to get a home loan.
Brutus..FYI you can borrow up to 70% of your existing Spark stock from banks using margin lending. However, there is a big difference in perception of risk. The difference is that NZers have not experienced a huge drop in property prices in the last 40 years so very few have that personal experience of financial loss on property. In regard to the NZ share market there have been significant corrections and people have been burnt. What has happened in the last 40 years has created the (false) perception that leveraging on property (or margin lending if you like) comes with very little (or even no) risk. This "castles in the air" phenomenon has been a big contributor to what has been happening, especially in the last 20 years. It artificially pushes up prices higher and for longer but the end result is (almost always) that the drop (when it finally comes) is far steeper and long-lasting than it would have been.
Many of the best risk analysts (Taleb, Shiller, Seastrand) have written (warned ) about this and to ignore the warnings is at your own peril. The biggest risk in gambling is to think you have a guaranteed winning strategy, when in fact, you don't.
Pollies torture everyone. It's just property investors turn to be 'it' and about time. Accountants will bill them to talk about how unfair it all is and pretend to get all creative on avoidance before delivering bottom line- in the red. Then go home and give thanks to kachinga patron saint of tax accountants
I'm 'over' whinging investors. Change happens and if these tweeks soften the fall in housing prices and help young home buyers, so be it. As a retiree, relying on interest income to cushion my retirement, I've had my world tipped upside down. These things happen - I'll get over it and so should investors.
... I'm not a housing investor : but it's a clear as day to me that Robbo has done a brilliant con job .... fooled much of the media & the citizenry .... luckily , not all ... some of us can see through his smoke & mirrors ... Wakey wakey sheeples : you've been had .
GBH you do evoke distant memories! In this instance Jeff Chandler (I think) playing Cochise, arms folded, something like “ white man speaks with forked tongue”
... " White man make heaping big smoke ... mix message ... much smoke and wind .... " ....
on reflection think it may have been “paleface.” little difference though, especially after a night out.
... " firewater make paleface heap brainfade .... wake up big stupid ... speak with forked tongue ... log in interest.co.nz. .... become blogger .... Ugh ! " ....
I agree that what Robbo has done, won't fix the problem of sky rocketing house prices. It will, however, slow things down a bit (a small band-aid). We now have to rely on the RBNZ to add no interest-only loans and DTI to the mix. These tweeks should all have been done several months back (as soon as house prices 'took off'). While waiting for some of these band-aids to take affect, hopefully more new homes are being built.
If they had any skill, they would adapt to the new rules and diversify into other asset classes. They have 4 years.
The fact that they are so angry, exposes the fact that they are unskilled leverage jockeys reliant on the continued gravy train of cheap and abundant debt.
dago...accountants specializing in property tax might start to feel like shrinks or a man (or woman) with a partner who just won't stop moaning about how unfair life is. And by the way, using creative to describe accountants is an oxymoron. Accountants use their personality as a contraceptive.
Dp
Wouldn't count on RBNZ acting fast, Orr still hasn't replied to Robertson letter which was sent start of the year...maybe it's just lost in the post?
Agree intent is missing on IO loan by everyone as may be it will actually puncture the ponzi otherwise what else could be the reason for not acting on it, as clear, how important action it could be in war against speculative demand.
alittle...Orr has 4 rentals. I wonder if he has a mortgage and if so whether it is a loan of the interest only variety??
Correct since the beginning it is 'conflict of interest' that is responsible for the mess that has been created to help the rich.
If Orr really has 4 properties, he should declare as a disclaimer before taking a call.
May be just like Right to Information, a time has come to have this type of disclaimer by people taking decession or not taking decession that affect entire country just for their petty selfish reason.
In the first place, why did Jacinda Arden gave time till May as discussion were already under way since months and also even if Jacinda has given a deadline for Mr Orr to respond by May, seeing the urgency if have good intent at heart, can rise above vested interest and respond asap as it is an emergency situation and show that his efficiency is on both side, like last year when had a scare that house price may fall.
You and me can discuss with valid arguments and justification but in elite circle, it is you scratch my back and I scratch yours so both Jacinda Arden and Mr Orr are doing exactly the same trying to help each other.
Given these sorts of conversions etc are a means to intensify, I expect there may be a carve out for them, as well as for people with an extra house or two if family are living in them.
Childcare centres in residential areas?
Yes and emergency houses, bording houses, short term accomodation in general, community centre etc. There are multiple commercial use options in Mixed housing residential zones. It will be a little bit of pain for those who decide to go this way in a form of submitting resource consent app and doing some building work plus paying for engineering reports to prove they comply with desired activity but it is not the end of the world given they wont need to pay $6-15k/year in additional tax on their rental income.
I will keep my rental house as it is. I have already increased the rent by $120 a week after the govt announcement to cover my future losses and expected rates increase. My tenant is my mate so we had a chat about new rule implications. She applied for accomodation supplement to cover the rent increase and got approved, which means money from govt is going to be used to pay the additional tax requested by the govt. In conclusion governmental cashflow is going to be neutral, my tenants costs will be neutral and my profits will be neutral. No big drama. :) I just do not understand how this 20% rent increase benefits the FHBs?
"She applied for accomodation supplement to cover the rent increase and got approved" amazing that someone would blatantly lie like you just did when the accomodstion supplement can be estimated on winz website by running through scenarios. She would not have received an exact 120 increase. Also you will be paying tax on some of that 120 so you will gain less by charging her more. Some friend
whatever mate :)
Deadcatbounce...you really expect us to believe that in 3 days you have made a decision to increase your rent, spoken to your tenant who has signed a new rent agreement that you have already written up, sent the new agreement to WINZ who have reviewed the application and sent confirmation they will cover the extra and then your tenant has come back to you confirming WINZ will pay? All in three days? Well, I am calling complete BS on you.
A greedy landlord might move that fast to avoid paying their fair share but WINZ certainly do not. No doubt your toxic little groups of landlords and investors are encouraging members to circulate this type of rubbish but you should keep your propaganda at least somewhat believable.
Here is one from Mark Twain for you “Never argue with an idiot. They will drag you down to their level and beat you with experience.” . Have a nice Sunday Karl:)
You do realise that Mark Twain filed for bankruptcy because he was such a bad investor right?
Do you think he used that argument with people who tried to convince him he was wrong about his investments? Probably....
Deadcatbounce...and it would be even more unbelievable that if you could have screwed another $150 out of your mate for rent each week that you wouldn't have already been doing so. Most investors only care about one thing. Themselves.
But at least you will be more careful about the untruths you posts on here from now on. Copy a link to the WINZ confirmation or just admit you lied.
Or more Air BNBs?
There have been a lot of over excited articles in the media recently. Especially with claims that rents will go up. Yet there seems to been a failure in understanding the mathematics around percentages. Now that interest is no longer a write off the amount of tax paid by residential landlords is directly linked to the rental income. So given that landlords want to minimise the amount of tax paid they will decrease rents.
Of course dictator, perhaps salaried workers wishing to minimise the tax they pay should ask their employers to cut their pay too?
It will achieve the desired outcome, no matter how impractical.
e: Time for a story. There was a company running a workshop. Business was going well and it was time to review the worker's pay. The company decided everyone was due for a pay increase. This became a trigger for protests by the workers because most of the staff would end up in the next tax bracket. Given the backlash the company decided not to increase their pay.
The end result was most of the staff left over time, presumably for higher pay. They actually thought that the next tax bracket would apply to their entire pay (Simon Bridges believes this as well).
I'd say that given the recent articles about landlords there are clearly a lot of landlords that are as foolish as the workers in the (unfortunately true) story. We shouldn't be surprised that given the number of investors that claim a percentage RoI without subtracting their expenses.
You will have to spell it out a bit better than that. Give some hypothetical examples of how reducing rent results in making more money.
It is of interest to me that a dictator doesn't know how tax brackets work.
Nah, you got it the other way round.
Rent should increase till it breaks even with the new additional cost arising from non deductible.
To find out the increase needed, you can do it the arithmetic way or refresh on calculus.
CWBW..you could design an app that calculates the extra tax landlords will have to pay and how much extra rent they need to charge so that they are not out of pocket and can maintain their lifestyles. LOL
A bumbling government with little understanding of the most basic economic concept - supply and demand. There's still plenty of cheap money and a great shortage of property. Had they just stuck with building 100,000 houses and got someone intelligent and disciplined to lead that project, we'd be almost halfway there now.
... they had 9 years in opposition , during the Key-English reign , and were as oblivious as the Gnats were that there was a housing supply problem , excessive cheap credit , and a flood of immigration ...
4 years later , they're still tinkering ineffectively around the edges of each of these 3 issues ....
Jacinda Arden and Mr Orr have already spoken about the advantage of DTI and disadvantage of Interest only loan and need of it to target speculative demand since months so is a mystery if Greg Ninness or David Chaston or may be Jenee can solve :
1 : What is that Jacinda Arden is waiting to hear from Mr Orr ( sorry what is it that waiting to hear something new)
And
2 : What is it that Mr Orr will present to Jacinda Arden that has not already been provided and discussed.
Or is it that both are playing a cruel game on people specially FHB and also keeping poor speculators on tenterhooks.
Not only Jacinda and Mr Orr but so is opposition, experts, economists and media not raising with fear that if implimented - housing ponzi may stop as is sure shot bullet even if not silver bullet.
Why is everyone so silent is surprising and only highlighting threats from speculators ( who after gaining millions are crying foul)
Love the picture. We'll be sending our tenants on our behalf for that stretcher.
CWBW...successive Govt has allowed investors to torture tenants and prospective FHBs for over 30 years. And with landlords now trying to get a consensus to evict tenants on the coldest day of the year the Govt has finally realized that nuclear responses on multiple fronts is the only option available if we wish to return to a fair and inclusive society once more. It has been a long time coming but last week the days of "house scalpers" in NZ became numbered. And not before time either. The 28th of March is destined to be celebrated as a Public Holiday, a date remembered as the day when we started to address the ills of "house scalping" and move towards a more inclusive NZ.
Do not be fooled karl s, though it is a good step but real step will be taken through RBNZ as stopping the gassoline of easy and cheap money to speculators through Interest only loan need to be restricted - not done till now raises concern on their intention - more on Jacinda Arden than Mr Orr as though RBNZ is suppose to be independent but......
Wait and watch as in absence of action on IO loan, speculators will keep the fire burning with cheap gassoline of interest only loan.
Also silence on this is deafining and explains the silence as is a real tool that could make difference, if any measures can, hence this tactics.
Know quite a few so called investors and all are trying to rush before possible May announcement just like the month of February before reintroduction on LVR - as are more concerned on restriction on Interest only loan than anything.
richard...I fear you are right and would not bet on Orr stopping interest only loans in May. Hopefully he surprises and does the right thing.
Problem of like of Mr Orr's getting away is opposistion and media as no one actually want the party to stop.
If they start asking the right question and grill, will not be easy for Jacinda's to get away though being thick skin, manipulator will still get away as always happen in NZ
You are surprisingly idealistic karl
Chinaman.. I have always supported the underdog.
JUST PAY THE TAX YOU HAVE MADE A PROFIT WHATS THE BIG DEAL
Fair and good. Everyone should pay tax on income but not tax on expenses.
... firstly , please stop SHOUTING at us ... thanks ...
Secondly , the big deal is that a legitimate business expense ( interest paid on debt ) is suddenly being denied to property investors .... without any consultation with experts nor with vested interests ... a major change has been made ....
Punxatawny GBH - we've had that conversation - you're repeating yourself
. . oh dear ... perish the thought ! .. paddle my lily white botty with birch branches .... . I shall depart ... hang my head in shame .... never to be seen again ( Tui : yeah , right ! )
How about this process:
You go to a hardware store and purchase what's called a tape measure (say $20).
With the tape measure you measure all the inside exterior-wall lengths that make up two adjacent sides (for example, a rectangular building ).
You multiply the total length of one side by the total length of the adjacent side; this gives you the overall square metreage of the building.
Measure the square metreage of each internal room by the same process and classify each of these rooms as residential use or commercial use and add up the totals of each category.
Apply the respective totals as a proportion of the total area.
Do the same for each floor if more than one storey.
Then you will have the proportionate areas for residential and for commercial uses for the application of the interest tax.
If this process seems too difficult then engage a valuer to do it.
The danger in speculating is that you could end up with Spam when you thought you’d bought filet mignon.
Another ranting :
https://www.nbr.co.nz/analysis/housing-policy-hoof
The way people are crying and throwing tantrums and if it is as bad to housing market as it is made out to be.....market should crash...if we are to go by all the sound buzzing.
Government has to act with RBNZ on interest only loan if it really wants to target speculative demand as interest only loan is mostly used by speculators otherwise will keep on adding to woes of FHB in one form or the other.
https://www.newshub.co.nz/home/money/2021/03/governments-housing-polici…
Another example of the Labour government interfering in something they don't know anything about with, despite expert advice to not go through with the interest deduction. Surely it is not legal for a government to negatively impact a group of people, that's dictatorship surely. This will not help house price not going up. Regret voting labour.
The Government has negatively impacted the tobacco companies, fuel companies etc. The Government is not stopping Landlords from buying a rental property. Maybe Landlords should save a bit harder instead of borrowing to the hilt (up to 100% of purchase price) and relying on tax rebates to keep their business out of the red. I just read a Facebook post where a Landlord is going to be -$161 per week, they attached a spreadsheet:
Purchase price = $353k, Mortgage = $352k. No sympathy.
They must be getting very little rent but if that was the case they would pay little tax.. The interest on 352k is only about $150 a week. $161 a week is $8,372 a year. That just doesn't feel right to me. It's like they are not getting any rent at all! But then why would they pay much tax? I'm calling BS.
I think they must be including capital repayment. Which they will get back so is not really "costing" them. If they were getting $300 a week rent and had a mortgage at 2.29% and hired a property manager I calculate that they would have a taxable income of around $9,600 as they should be able to deduct costs for rates, insurance and management of around $6,000. They would make $1,600 profit but would pay tax on $9,600 which would be about $3100 and so a loss of $1500, about $30 a week.
Managing the property themselves would be the first obvious cost saving if they are indeed doing that. I'm wondering if these new rules will hit the property management companies hard. Landlords may not put up rent but the managers will really push hard to raise rents as they do that in the best of times already.
They're working on 2.99% and yes they're P & I, the bank won't lend IO due to LVR apparently. $9k of expenses including rates, insurance, maintenance with $4k of that as a miscellaneous expense provision.
Is it a leasehold apartment
*shrug* it's a "Whanganui property".
Here's a screengrab of the spreadsheet:
https://ibb.co/KwPrNSN
That spreadsheet seems to indicate they have $300,000 worth of capital gain possible in this one property. (The Equity line)
The purchase price and LVR must be historical.
In which case, they can either sell-up and take their gains now, or adjust to the new regulations - and the Grey Rhino ones that are yet to come. (A "grey rhino" is a big and visible threat that goes largely ignored.)
If that's right, $300k worth of realisable gains goes a long way to offsetting any minor taxation inconvenience now.
They're including almost $10,000 principle repayment in their "losses". I also think $5,000 a year maintenance is rather high. If it was me under the new regime I would think I was still making over $100 a week plus the interest rate could be 2.29% which is about $2,500 less interest (+$50 a week)
I would also keep in mind that the value of the house is at least keeping up with inflation.
I actually think in reality, in the long run, they will still be very positive under the new tax regime.
Landlords shouldn't expect the tenant to pay interest+capital+a nice profit as well as get capital gain. Come on.
Nzdan...every house I purchased after the first one I borrowed more than the purchase price (to cover beer money and lawyers fees). The damage this causes to our desire to have an even playing field for FHBs is huge, not to mention the massive additional risk it places on the whole banking system, a system that would no doubt be bailed out with our hard earned tax dollars.
You're like an ex alcoholic who, after a lifetime of partying, wants to ban alcohol now for everyone for "the good of society".
Do you think he should of opened a liquor store instead? I used to be an alcoholic, can see the damage it does, but because I'm morally/ethically empty as a human being, I'm going to open a liquor store and sell as much booze to the young as I can for my own personal financial gain - who gives a %@$ about the social consequences.
It would appear that many who have loaded up with debt the last decade, locking young people out of home ownership, would appear to think the later is the superior option.
#shame
His philosophy is like a pretty flower that has no fragrance.
The question becomes - could I have possibly lost my sense of smell?
zach,,exactly. Like the guy that parties like there is no tomorrow and then when he is too old to do it anymore he starts to rail against the evils of drugs and alcohol. Next thing you know I will be joining the church. LOL
Kiwi...the laws against dealing meth are legal, impact on a group of people(drug dealers) and the laws are not (signs of a ) dictatorship. The laws are there to (sensibly)protect society from a group of people who are focussed solely on profit and have total disregard for the problems their actions cause to our country. With a handle like Kiwi I suggest you act like one instead of worrying (only) about your own self interest. (pun intended).
Kiwi it is for the good of the economy at large that this gigantic dangerous ponzi scheme is slowed down. I wouldn't expect an investor who can't even see the sense of not taking massive risks with his or her own money, to understand macro economics. Investors are being protected from themselves by the changes to tax deductability. Next will be interest only removed, I hope
Dago..I don't really care about the investors. I am just glad we finally seem to be moving in a direction where more kiwis will be able to afford their own home and fewer kiwis will need to pay 30% or even 40% of their wages in rent.
If investors were genuinely putting in a fair amount of their own capital (i.e. at most 50% LVR) then I might have some sympathy. But the current system is extremely rapacious and you're right it's about time it was nipped in the bud.
Thankfully, there are still 2.5 years for the changes to filter through. Any petitioning by lobby groups will fall on deaf ears as Labour have a majority. If these changes make a measurable difference to young people's chances at home ownership, then there's potential for more landslide victories.
It’s not any other business
As much as investors claim that they are operating a business housing people, this is not a business like any other. When you are dealing with a basic human right such as the need for shelter, it’s not unreasonable to expect the rules to be a bit tougher.
Rising prices have allowed the portion of the population fortunate enough to already own a house to use that position to extract increasing amounts of money from other people.
That increasing wealth disparity means some action was needed, no matter how unpalatable.
https://www.stuff.co.nz/business/opinion-analysis/124667288/four-reason…
(Comment from Aussie this morning)
Apart from the economics of profit and wealth accumulation, debt’s social aim seems to be to keep us all working in order to retain and maintain social, political and economic control and power to ensure no one is in a position to challenge the dominant orthodoxy, the hidden religion of work, defined as ‘employment’ on an economic spreadsheet.
It seems as if ‘liberty, equality and fraternity’ has long been forgotten in favour of this hidden religion - the endless treadmill of low wage work where the possibility of ever owning a house is infinitely postponed but at the same time retains its mythic power, to keep our noses to the grindstone.
bw - food is also a basic human right so perhaps supermarkets should be slapped with additional taxes and legislation to reduce food prices?
Not so many years ago, Graeme Wheeler, RBNZ governor of the day wanted the John Key National Government to treat multiple investment property owners as businesses and charge them business rates of interest. John Key refused. History will be revised and Wheeler will be considered a visionary
Beware - Robertson and Orr still have that option in their toolbox
Investors who are squealing about being businesses want the benefit of private residential interest rates, but, don't want to pay businesss rates of 8%
I've been arguing this for years. If you want to try and start a business (providing goods and services other than people farming) you pay excessively high rates. Yet if you want to people farm in order to parasite off other peoples income, they bank will lend you as much as you want at 3%. Our economy is %#@%ed.
Excellent point. I bags investors are a legitimate business and thus should pay 8% interest. All in favour say aye!
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