By Greg Ninness
Regardless of whether the Government introduces a Capital Gains Tax (CGT), now could be a very good time for residential property investors to review their portfolios and make some long term decisions about whether to sell down some or all their properties, buy some more, or sit tight.
Because whether a CGT is introduced or not, the residential property market is at a turning point, and investors big and small need to be ready for the change in direction.
Consider the major drivers of the housing market over the five years from 2012 to 2017.
- Strong migration-driven population growth which saw demand for housing outstrip supply.
- Falling mortgage interest rates.
- A river of money which flowed from China into our housing market.
The results were inevitable, a rapid escalation of prices, starting in Auckland and then spreading to the rest of the country.
Between January 2012 and January 2017 the REINZ’s lower quartile selling price in Auckland, representing that part of the market where investors were most active, increased from $350,000 to $651,800.
That’s an 86% increase in price over five years, so there was serious money to be made and under the current tax regime, those gains would have been tax free for most investors.
Little wonder that capital gains became the main driver of property investment decisions rather than rental income, and inevitably, rental yields began a steady decline.
That changed the nature of residential property investment, from one in which people would look to secure a long term income stream from the rental income, which would be taxable, to a speculative play by which they would accept very low income yields in return for tax free capital gains which would be realised when the property was sold.
But that has started changing.
In late 2016 the Chinese Government clamped down on money being taken out of that country, which had an immediate dampening impact on the property market here, particularly in Auckland.
That clamp down has not eased, indeed the Chinese Government is intensifying its efforts to restrict capital outflows.
Additionally, a partial capital gains tax on property was introduced by the previous National Government in the form of the Bright Line Test, with its timeframe for determining when capital gains should be taxed if a property is sold being extended from two to five years by the current Labour-led Government.
Loan to Valuation Ratio restrictions on new mortgage lending and other changes to the tax treatment of investment properties have also had an effect.
But potentially, one of the biggest changes that’s occurred has been a gradual shift in the underlying fundamentals of supply and demand, with net migration slowing, reducing demand side pressures, while construction levels of new homes have been rising, increasing supply.
There are now increasing signs that supply of new homes is starting to catch up with demand, particularly in Auckland where the pressure on housing has been greatest.
If the current trends in migration and new housing supply continue, demand for homes will not only start to flatten off, but the shortage of homes that’s built up over the last several years could start to decline.
The only part of the mix of factors that influence the housing market that hasn’t changed is mortgage interest rates, which remain at near record lows.
The combined effect of all these measures on Auckland’s residential property market over the last two years has been dramatic.
In January 2017, a few months after the Chinese clampdown on capital outflows, the REINZ’s lower quartile selling price in Auckland was $651,800.
In January 2018 it was $650,000 and in January 2019 it was also $650,000.
So after a five year run during which lower quartile prices increased by 86%, capital gains came to a crashing halt.
The Auckland market has been as flat as a pancake for the last two years and there are increasing signs that property markets in the rest of the country are starting to cool.
What is not certain is the future direction prices will take.
It’s possible that prices might start rising again after a period of stagnation, or the recent flattening could be the peak of the market, from which prices start to decline.
But if migration and new building trends continue along their current paths, then it is more likely that prices will eventually start to slowly decline rather than rise.
If interest rates rise significantly or there is a major economic shock, then the decline in prices could be quite steep.
This should bring about a fundamental change in investors’ behaviour, away from a model based on speculation, where they chase capitals gains and are willing to accept low rental returns, to one where rental yields are the key and they chase properties with the potential for good rental growth while capital gains are secondary.
However such a change may take some time.
There is a whole generation of investors whose have only ever known capital gains as the primary driver of their investment decisions. And the same goes for other players in the market such as developers and real estate agents.
For many of them, changing the habits of a lifetime will not be easy.
The investors facing into these winds of change fall into two main camps.
There are those who have owned residential investment properties for many years and have perhaps occasionally added to their portfolios, but have kept their overall debt at moderate levels.
These people are in a very fortunate position.
They should have seen substantial increases in the capital value of their properties and in their net equity.
And because their rents would also have increased over time while falling interest rates should have reduced their mortgage expenses, they should have strong cash flows and healthy income streams.
These people are very well placed to weather any storms that come their way.
But if they feel the property market has peaked in the current cycle, they may want to reduce their property holdings if they feel their money could work harder for them elsewhere.
Their main problem may be finding a suitable alternative investment for their money.
Others may decide to hold their existing properties in the belief that if property prices fall, they will fall more quickly than rents, improving rentals yields and their potential investment returns, creating buying opportunities.
In the meantime they can afford to sit and wait.
Then there is a second group who has only recently bought into the market, or who have been longer term investors who have kept growing their portfolios by mortgaging themselves to the hilt.
As the value of their existing properties increased they would borrow more to purchase another property as they kept chasing capital gains.
But now that capital gains are drying up, they are in a trickier situation.
Many will be left with properties that have high debt levels, low rental yields and thin cash flows.
For some, money might be so tight that it would only take an expected expense such as the need to undertake a major repair or an extended period of vacancy, for them to experience a serious cash flow crisis.
These people should look to rationalising their portfolios now while prices are still relatively buoyant.
If they don’t and there is a serious shift in the demand/supply balance causing prices and rents to drop, or if there is a significant rise in interest rates, they may not just lose their shirts, they could lose their underpants as well.
So what difference could the introduction of Capital Gains Tax make to all of this?
Probably not a lot.
A CGT would probably sit well with other changes that are happening in the investment property market, helping it to turn away from the speculative model based on capital gains and towards a more rational and orderly model based on fundamentals such as rental yields.
Those investors who cope well in the new environment, would probably cope well with CGT.
Those whose positions are already marginal, should probably exit the market now, regardless of whether a CGT is introduced or not.
But there’s unlikely to be a rush for the exits.
No one likes to admit they’ve made poor investment decisions.
Most will stay put like possums in headlights and just hang on to their increasingly poorly performing investments in the hope that the market will eventually come right for them.
Post script.
It was amusing to read Opposition Leader Simon Bridges’ comments last week that introducing a Capital Gains Tax would cause more New Zealanders to “bugger off to Aussie”.
It was amusing on several levels, because not only does Australia have a Capital Gains Tax, it also applies Stamp Duty to property sales.
Yet in spite of that, Australian residential property has been a popular investment for investors from both sides of the Tasman, so much so that it has caused an oversupply of homes in Sydney, where vacancy rates have been rising and rents have been falling.
It’s ironic that in this country, where capital gains are not taxed in most cases, the reverse is true and there has been a housing shortage.
That’s one of the reasons why the big price falls that have occurred in recent months in Sydney, have not eventuated here.
Which shows you that what happens in the Australian housing market will not necessarily be replicated in this country.
But what the Australian experience does show is that it is possible to have a buoyant residential property market and a Capital Gains Tax.
The two are not mutually exclusive.
You can receive all of our property articles automatically by subscribing to our free email Property Newsletter. This will deliver all of our property-related articles, including auction results and interest rate updates, directly to your in-box 3-5 times a week. We don't share your details with third parties and you can unsubscribe at any time. To subscribe just click on this link, scroll down to "Property email newsletter" and enter your email address.
102 Comments
Good article, to balance the shrills of the conflicted RE salesmen so often on here.
Agreed. End of the day agents make money on falling prices as well as long as stuff sells. Picking there will be more low fee models launched this year as sales tighten and the battle for listings will get red hot because those selling believe its their right to get the 2017 money. Cough cough dreaming.
The last foundation of speculation is interest only. If the banks pull that then shes all on for love or money as those loans unwind over the next love years. Specuvestors would have been dumb not to fix long, but the flip side is those that have are locked in to the roller coaster ride that is about to unfold.
There are always agents who will lower fees in any market. That wont change. Same as any product or service.
These type of articles are exactly why I read Interest.co.nz. A well balanced piece.
"Most will stay put like possums in headlights and just hang on to their increasingly poorly performing investments in the hope that the market will eventually come right for them"
This is particularly true for property investors. Where Auckland is concerned, property is once again highly illiquid, not that easy to sell. For owners of high end properties, going down the Airbnb road until buyers return????. Nah, I can see that becoming saturated too. Even in the regions.
Good properties will always be in demand despite capital gains tax. Around the world property is taxed so that won't have a major impact here in NZ, Apart from a few investors may get out of the market. Rents will go up if it is introduced. If the stock market is taxed, KiwiSaver gains, and business there will be no safe haven to invest in.
Can you explain to me why rents would go up ? It is a tax payable on sale of the asset, it is payable on gains (if any) made through just holding onto the asset, not through anything productive.
The only reason they will go up is because some property managers and landlords will use literally any excuse to raise them sadly.
I dont think they can go up. ie I would have said that the absolute maximum last $ is already being extracted from tenants. I dont know many renters but of the ones I do know the theme of the last 5+ years has been I cant afford to stay here any more as the rent is going up so I am having to move.
Really very simple Sluggy.
Current net yields are 4% (interest.co) on investment properties less expenses (mortgage, rates, insurance, compliance costs, bad debts etc) with likelihood of little capital gains (taxed or otherwise) and high risk of some market correction. Net return probably in the order of 1.5 to 2%.
Returns from passive investments such as term deposits current 3.5% without the considerable work involved with rental properties.
Taxed capital gains on investment properties will compound the issue making rental properties less attractive under the current conditions in the medium term at least.
For investment properties to be attractive especially in the absence of capital gains (and what capital gains being taxed) then investors will be need to look for better returns - read that as increased rents.
RBNZ figure show new mortgages for investment properties have dropped in the order of 50% since 2016 with risk there will be a rental shortage with increasing rents over in the next few years. A capital gains tax will further discourage investment.
The sunshine days of property investment over the period 2012 to 2016 where tax free capital gains (within limits of brightline test) off set poor rental returns are long gone.
Having said all that, morally I think that there should be a capital gains tax introduced but that is going to come with consequences.
Marginal yield will increase as prices fall. Not so good for existing asset holders.
CGT as proposed is hopeless, too many exceptions and exclusions to be efficient, and too high a setting, and without inflation indexing massively unfair.
Land tax at 5-10x current rates (no exceptions) and a large reduction in income and business taxes would be much more efficient.
Amen. This would actually encourage productive investment rather than mere rent extraction.
not so fast printer8. I though you guys bought for the long hall...no intention to sell (as you always advise the IRD)? The presence of a cgt makes not one dot of difference to your cash flows ...you have zip reason to justify the rents going up. And if you do sell (when I know you never intended to) you are pocketing a windfall - just not keeping all of it. So effectively...you want the tenant to pay the possible cgt tax for you in advance!!.
You guys talk so much bdust.
Rastus you hit the nail on the head! Investors want renters to fork out for everything and try to justify it, but do any renters get a reduction when interest rates fall?
Easy to see to who are not landlords here.
Dogboy, it may surprise you that landlords are not in the business of providing social housing - that is the government's role.
They are involved as investors - seeking a fair return on both their capital investment and work.
Investors factor in the likelihood of a long term capital gain (longer than the current 5 year brightline test/aka CGT) and so can off set the poor yields/appease themselves over the low returns. Effectively reducing that long term gain in light of poor yields through a CGT means that landlords are going to need to improve that current true 1.5% to 2.0% return.
Another surprise for you is that reduced interest rates have meant that rents have not increased at the same rate as house prices. However, be warned, an increase in interest rates is also going to necessitate an increase in rents to offset the the falling 1.5 to 2.0% yields.
Dogboy, if you think that property investors are rich fat cats living the life of luxury, then get out there an invest yourself. You will however find it a tough business.
Although a past landlord, I have a very strong social conscience, looked after my tenants as they will attest, sympathise with the difficulties of current FHB, and for equity reasons, are a strong supporter of a CGT. I am also a realist and know that a CGT will have consequences, one of which will be upward pressure on rents.
..stop deluding yourself. the renter is paying for the house but you get the tile. The tax system and wff have ensured you are on a winner and could always outbid. Good to see the COL bringing this rort to an end.
Printer8, such a long post, is your conscience eased? Like i said landlords will justify any increase, and please don’t try to patronize me, i will leave it at that
You guys are so off the mark making assumptions that investors are just greedy extortionists wroughting the poor little guys. It's just bollocks. Yes ok there will always be a rotten apple in every barrel but dont delude yourself into thinking that is the norm.
Upward pressure on rents...sure. What’s preventing Landlords from increasing rents anymore than they already do, and what part of CGT removes that obstacle?
How does a Landlord decide how much rent should increase by to cover CGT? “I think my property will be worth $200k more when I sell it in 10 years so I’ll put up the rent by $126.90 per week to cover the CGT”
@printer8 That's the whole idea. To make property investment less attractive, to encourage investors just sell and then use their time and capital to bring something productive to society. Housing can get back to being homes for owners to reside in, raise families, have pets etc. If rents are to go up it will just be an example of the control loose monetary policies has given unimaginative ordinary people, but i believe that the way the world is going the rent seeking class begin to lose its strangulation hold on economies and people.
CGT - The plus and minus effect by ANZ Chief Economist well worth a read gives perspectives that none of us on here would have - conclude what you will - http://tonyalexander.co.nz/wp-content/uploads/2019/02/WO-February-28-20…
Rents will always rise to the limit of what people are willing or able to pay. Tenants have been desperate in recent years so the rents have gone up. It's nothing to do with the costs.
If for some reason there is a surplus of properties for rent, and landlords have vacancies they find takes time to fill, rents certainly won't go up and might go down. Again not related to the landlords costs.
The proviso to this is over the long term, supply will change (albeit slowly) depending on whether landlords find the business attractive of unattractive.
So landlords will expect tenants to cover their future tax bills ?
All that happens is everyone pays tax and it encourages work .
If i make a million on property over several years or 30 years and have to pay lets 200k meaning i only make 800k of unearned income it would no longer be a good investment ?
Nope, dont agree, tenants are already being screwed for every penny they can be.
Good article Greg.
Yeah, top article. Way better than the rubbish one gets from mainstream media.
2 things that will tip it over the edge, either:
- increasing interest rates and or
- peoples capability of (no longer) using their house as an ATM which will negatively impact the spending spiral...
I agree PitU, its a stupid government that suddenly brings in a large tax and thinks it will have absolutely no serious negative flow on effects.The best we can hope for is this CGT never gets implemented. The horse has already bolted over 10 years ago anyway.
CGT will have no effect if property tanks/recedes. There is already a 5 year "bright"line, it would be an extension. Stop reading bridges tweets, the man is a literary disaster.
Carlos67 - A perspective on the CGT that none of us on here would really have, enjoy - http://tonyalexander.co.nz/wp-content/uploads/2019/02/WO-February-28-20…
do you believe that %10 of the population pays %70 of the tax?/
Andrew- Bank Chief Economists do not make up numbers I'm sure you could confirm on the NZ statistics website
my friends with money are very good at getting around tax. I suspect it's false, partly because a lot of wealth is stored in assets that are not taxed but used to avoid tax.
Banks make up all sort of stuff.
Maybe if the other 90% were paid a little better they could contribute a little more to the tax kitty and remove a little bit of that "burden" on the 10%?
Thanks for the link Shoreman, very interesting
If the horse has bolted then there is no reason to object to a CGT being implemented now is there.
Cactus Kate is back with a vivisection of the TWG. Nice dash of black humour, too.
From a personal point of view despite my entire career working out and implementing ways to structure out of them, I have zero issues in principle in having inheritance taxes. As long as during your life you can accumulate wealth relatively tax free. I do so on the principle that it is the crudest form of attempting to have this Socialist concept of equality in society. It is also the fairest as those who accumulate assets are left free to do so on the basis that the government can then delay their theft until you are no longer here. It is akin to the TWG's discussions on deferring tax or "rollover relief" on CGT til you die. It also encourages people not to hoard their wealth and actually bloody spend it. This is generally regarded as good for the economy of a country all round.
When political historians review the Key period they will be scratching their heads as to how the heck he got away with so much.
That's easy, enough of his voters were lining their own pockets well enough that they didnt want the game to cease.
Thank You great article, also the big difference between us and Australia is the MSM where they are more informed on housing price drops, most Kiwi Joe Bloggs (especially FHBs), have little truthful information to base their house purchases on. When our MSM finally do their job and report the whole picture, firstly Auckland will follow Sydney and in time the regions.
Perception is everything.
After having lived overseas in two countries, I must say that one of the biggest things I miss is a decent, robust MSM.
It's so threadbare here, it's not funny.
We have much to be thankful for, for interest.co.nz, one of the very few shining lights.
NZ's wealth/savings/well-beings is underpinned by residential property values.
Which political party will dare to let the wealth drain?
Just stop wishful thinking please.
Property value will hold for a while but a crash (decrease larger than 15%) will not happen in NZ except causing by external factors (disasters).
Question Xing - definition of a crash? You have put a decrease of 15%, but is a time frame a factor? If the prices roll back by more, but over a period of three to five years, is it still a crash?
Many have argued that property prices need to roll back to say $200 K or less in Auckland. If this happened over a wider period of time, would it be a crash?
What makes you think they have that kind of control and competence to set the housing market? Sure they can provide impulses that drive the market up or down but actually holding it steady (especially without admitting that house price is not controlled purely by supply and demand).
I don't think its politically viable for labour to inflate the market further so that's not an option and lots of their policies will have the opposite effect.
I don't think any government can control asset values these days especially not when the buy and sellers have control of the prices they set and accept.
Especially if Sydney prices decline significantly. It would be very strange to have Sydney housing cheaper than Auckland, especially given the earlier-posted empirical evidence of the markets' connected nature.
If all the houses is NZ halve in value overnight, we still have the houses. It only negatively impacts on those who have more than one house, who are a minority. I wouldn't be surprised if net well-being increased, certainly over the medium term as business becomes more competitive, salaries go further, people can afford to buy homes and start families and have more money leftover to spend in the general economy.
Saying expensive houses is a good thing is as crazy as saying expensive food is a good thing.
If all houses in NZ halve in value overnight, the banks will be knocking on your doors by sunrise.
And rents will fall.
It's something I consider. With shares we have seen people wiped out both in '87 and '07 and coming again shortly I imagine.
If you lose shares it's gone. With property if you can make payments then you can just push on even in negative equity, at least it gives you a home (or renters a home) and a way climb back out?
I think this is the reason kiwis love property it's a tangible asset that can be monitored easily.
Want people to invest in listed companies? Then clean up the image of big business.
All this legislation is targeting middle income earners really (anything less than a million is middle let's be honest) while big multinationals have us all bent over a table.
Legislation should be enabling local SME to challenge the big multinationals not give them an advantage.
When I say compete I mean locally not internationally obviously.
Most people don't buy shares on leverage, so if your shares drop 30% you lose 30%. Property on the other hand.. 30% drop in the property value and there goes 80% of their equity.
Well said. There is much more duplicitous behaviour in big business in regards to tax avoidance than with the property investment sector, which is relatively transparent. Any CGT is not going to address the disparity in prices, salary to house cost ratio or the ability for first home buyers to enter the market. Who it will affect are traders who are already caught anyway with the brightline test and tax on sales and they are a shrinking minority.
You assume that once the negative feedback loops kick in that there will be a way for governments to arrest the falls. Both AU and NZ governments managed it in 2008, but only because they were starting with a high OCR.
Part of the reason its so irresponsible for the RBNZ to allow high number of Interest Only/High LVR lending in a low interest environment, is that it leaves no room to maneuver. If prices start to fall the banks will stop lending to riskier borrowers, further compounding price falls.
The nice thing is we get a preview of whats to come in the form of Sydney/Melbourne. I suspect once the RBA realizes how far prices might fall they will be too late to stop it.
A river of money which flowed from China into our housing market.
National Governement supported by media stand was that Chinese money laundering has no role in the housing Crisis (Sorry was not a crisis but a happy situatuation as per National Leader - what a shame - Denial, Lie and Manipulation was Natioanl policy).
CG is not only to bring down the house price but more for Fairness in Tax system ($100 earned as wages or initerest gets Taxed but 100 of thousands and million dollar profit is Tax free - defenitely many politicans and people in high places, media and so called experts will be disappointed as it will hit them the hardest below the belt)
Time to review the tax system and yes should consider some discounts to farmers and small business and housing speculators should be taxed and to be fair to them also should be inflation linked and may be not realted to Income tax but may have flat 20% CG (After dscounting Inflation and expenditure associated with it). Speculators or Investors should be allowed to play as along as they pay their fair share of tax just like any other income and investments.
Auckland council worked out that they could cut off land supply, inflate building costs and get re-elected. Then rely on people to blame the Chinese, because that is much more popular than acknowledging this problem is entirely NZer caused. We ended up with one of the slowest building rates in the Western world during a property boom.
It is tragic. And now we are going to tax the results of our ineptitude.
He deals with the drivers of house prices fairly well, but rather ignores the effect of immigration on overcrowding. Overcrowding is not uniform, it hits those at the bottom severely, and those at the top are unaware of the consequences of their stupidity.
To me the house price hyperinflation is mainly a consequence of flawed financial policy and the overcrowding is a consequence of flawed immigration policy. Flawed building policy makes both worse. Plonkers in charge?
Capital gains tax is stupid precisely because it encourages speculation and misallocation of capital. The places that did worst in the last crisis all had it and their governments thought themselves very clever as the tax income from their house price enhancing policies made them look prudent. So expect lower interest rates to encourage more investment in bigger and better family homes for those what can afford them. Who will they be? Those who are at the top of the cartel of corporate and state oligarchies.
The next pro-stupidity policy will be tax breaks on mortgage payments for the family home, as this will benefit those in charge the most. They will not see it that way, it will seem like encouraging investment.
Who pays for all this stupidity? The productive sector and everyone who works in it.
Is there overcrowding due to a lack of houses or is it due to a lack of available and affordable houses? In the last 20 years, the number of private dwellings has increased at a greater rate than population growth. I guess it depends on what defines a private dwelling and how empty it is?
1998 - 2008 - Private Dwellings increased 14.8%, Population Increased 11.7%
2008 - 2018 - Private Dwellings increased 11.1%, Population Increased 11.5%
1998 - 2018 - Private Dwellings increased 27.5%, Population Increased 24.5%
But NZ's population aged, birth rates and families grew smaller leading to a vast majority of houses being occupied by less people, with many more at the bottom of the pile being crammed into few houses.
Are those figures relative to Auckland only, or are they those misleading Nation-wide figures
They are nationwide, fair point.
If you look at the construction activity graphs they show on this site and then normalise for population Auckland reduced building activity by about 20-30% from 2004-2006 peak market to 2014-2016 peak market. That was with the much higher price increases in the more recent boom.
The actual ratio of dwellings to population has spiked in the last 5 years, but its still no where near as "bad" as many people claim. I suspect the capital appreciation has also altered peoples decision making.
Why not hold on to that second property for the weekends when the capital gains outstrip the cost of ownership?
Why downsize for retirement from that big 4 bedroom house when the property keeps appreciating in value?
And the can all be seen as logical choices while prices are rising sharply. But when prices are declining it will feel a lot different.
You can add the phasing out of negative gearing into the mix of negatives as well.
A more sensible solution would have been to stop interest only Mortgage loans decades ago. House prices and speculation would have been curbed. Do you get a CGT rebate if your house prices falls when you sell ? The government cannot take the gains and not pay out on the losses, I mean that is just not fair is it ?
Exactly right and the real cost of buying a house is not the purchase price. It is the purchase price plus the cost of the mortgage, plus any improvements both over time offset against the sale price.
Decent article but I have 2 criticisms:
1) No mention on FBB in the overview of changing market forces.
2) Describing the Auckland market as "flat as a pancake for the last two years" when it has slowly but steadily been declining for a few months already (based on HPI).
Agreed that FBB has played a major role along with other factors and yes Houses in Auckland has fallen in most place from 10% to 20% from the peak (So is not flat).
Earlier it was denial that Chinesse money is at play here in NZ like in many other countries but now no article is complete without mention of Chinesse money (Money Laundering) role in NZ.
Again most were and are in denial mode that Foreign buyers were important player in Hosuing market in NZ, more so in Auckland so is hard for them to accept but will do gradullay.
Still many in denial that housing market has fallen from the peak and though heart to heart knows that has fallen and/or may fall further, do mention that is flat as a compromise and also is too eveident to not accept even the flatness and lose their credibility but for how long can one deny is to wait and watch
No, Auckland median prices with smoothing are indeed flat. Only North shore is down significantly ~5%.
house hunter was using the better measure.. HPI
Only Manukau and Rodney are not definitely down on the HPI graphs.
Come to Pakuranga and nearby area and check. It is not a perception but reality.
The ideal case is that interest rates will go up because of external factors outside of the reserve bank's control. Looks like it's slowly going to happen either way.
In January 2017, a few months after the Chinese clampdown on capital outflows, the REINZ’s lower quartile selling price in Auckland was $651,800. In January 2018 it was $650,000 and in January 2019 it was also $650,000.
In late 2016 Auckland altered its unitary plan to increase exurban land supply dramatically. Transition from severe under supply to large over supply. Capital gains based on land appreciation subsequently ceased. The rest of NZ was completely unaffected by this and there prices have continued to rise. There is a better explanation than rich Chinese people.
Good article. I urge investors, and first home buyers, to now take a really close look at what is happening in Sydney and Melbourne and assume similar will happen in Auckland (and then the rest of the country). It’s getting nasty, despite the Oz mainstream media saying it’s picking up again. It’s not. Also, the other most unaffordable markets in the world are now declining, notably Hong Kong. If investors don’t assess and reposition now, good luck to you over the next few years.
In my inbox this morning...Spin from B&T RE agent (I think he is somewhat deluded):
"The Auckland property market had a steady and considered start to the year. Prices were on par with January 2018, but this year saw a marked increase in sales volumes. The number of properties sold was up 10 percent year-on-year and was a massive 29.6 percent higher than December.
This pattern has continued into February with solid buyer interest for well-priced property in all categories, good attendance at open homes and a general air of positivity. The market is in full swing now and the February to August period is when the bulk of properties are sold.
If you’re thinking of placing your home on the market, now is a great time to capture motivated buyers. You’ll also benefit from a stable market, compellingly low interest rates and of course our Barfoot & Thompson summer promotion that gives you more – for less! "
Key messages "good interest in well priced..." and "now is a great time..." says volumes. Summary - we need well priced (cheaper) listings...now!
Lol.
Do not even feel embaressed when they send such email.
You cannot fool all the people all the time. Game is up and now stand exposed. Should think twice before sending such email.
I would think long term investors would look at affordability also. Capital appreciation will face increasing headwinds unless there is some real wage inflation or substantial drops in interest rates without which domestic demands ability to bid up prices is effectively maxed out. As with all investments past performance doesn't guarantee future returns and as the article above states, there's more downside risk at this time.
Such a simple article.. can simply put back to basics
There are speculators.. gamblers
And genuine investors .... in for the long haul
Doesn't matter if it is a at the Ellerslie race coarse, share market bubble....those on the long haul and keep to the path end up doing well...
Those gamblers/ speculators who do their homework, have the self discipline over greed, to get out at the right time do well and move on.
Those gamblers/ speculators who believe the bubble will go for ever.. provide to the down turns and bargains to be picked up by those in for the long haul.
OH for those heady days of of the 80s sharemarket...
Funny that it was boomers who saw / participated.. either did well, not greedy.. or greedy, got hit hard and learnt.
The same boomers who has cashed up their homes and cash rich over the last couple yrs...just before or as the market tightens up...
And all the media stories of those younger (hero worshipped) ppl who have huge portfolios.. many mortgaged to the hilt.
History is such a wonderful unused resource to the current generation who "knows better".. and its been like that for 1000s of yrs.
The opposition to the CGT by these property speculators masquerading as landlords is laughable. The fact the tax concerns them is evidence that they have purchased for the intention of resale and therefore should be paying tax on the profit regardless. Their argument is a contradiction.
Rastus - I suggest you digest this article for a wider perspective on the implications for NZ with a CGT that the TWG has recommended - http://tonyalexander.co.nz/wp-content/uploads/2019/02/WO-February-28-20… Happy reading it's in-depth
Your post script about Simon Bridges is totally incorrect NZ citizens are permanent temporary residents in OZ As such they are not liable for any tax on non Australian earned income So if you move over there you can avoid the CGT 100% This has been tested against the ATO a number of times and has been upheld See the beyond accountancy website for proof So I am afraid the last laugh is on you
I believe that anyone who invests in Australian property is liable for CGT, regardless of where they live.
SB is an idiot !
NZ citizens living in Australia (Visa Subclass 444) are considered to be PR only for tax purposes, therefore they are subjected to CGT.
Great article and to the paragraph "their main problem may be finding a suitable alternative investment for their money" well back in 2008 we saw finance companies going bust every week and investors losing life savings so I believe that drove many to invest property as a safe alternative.
Kiwis have been burnt in the past so property will continue to be the go-to investment for most.
delboy. It'll be fascinating to study the national investing physce if NZ does follow the big Aussie cities with sharp house price falls. If Peters decides NZrs are having a CGT I can see people reluctantly eying up high dividend yield blue chips such as utilities.
I am finding the market in Christchurch at the moment terrible!
I bid on four properties today and was outbid on all of them by home owners!
This is just not right, I am a property investor and a greedy one at that according to many on Interest.co.
I should be able to buy them at my price, without pesky home owners forcing up the prices!
How dare they, it is not right and the sooner the market tanks in Christchurch the better for property investors!
New is that the ChCh property market is still very very stable!
Ya shudda bid what the properties were worth.
You should know the drill by now (if you are an astute investor) - Cheeky bid will only get a cheeky counter bid !
On the same note, I am sure you are just as thrill if you are selling a $500K home and someone comes along with 250K offer..
Sounds like you have run out of earthquake written off shitboxes to bid on so you thought you’d try your luck on some proper homes?
Nah, it just means that your own leverage is getting too tight, man2. Your credit game is up.
You win some you lose some that's how it works. Its good there is plenty of buyer interest and positive selling action. Chch market on the move?
Good write up Greg.
Sydney has an oversupply of homes and has cgt. Auckland has housing shortage and no cgt so that should encourage investment and building right. Is the rma responsible for this lack of auckland supply? And other factors like the horrendous council charges. There is a lack of political will and understanding in the reds and greens to make it any easier.
One little bit of information that I have not seen quoted.
Apparently it will cost HNZ $200,000,000 to bring their properties up to standard. That is and average of $4000 per property. We all know you do not get a lot done for $4000 when you have to get electricians, builders, and inspectors involved. If the same average was applied across the private market we are looking at $2.2 Billion.
where did that figure come from?
A river of money which flowed from China into our housing market.
Greg you need to be sent to a re-education centre.
"Say after me! 3%!"
"A river..."
Whack! "3%!";
"A river..."
Whack! "3%!"
"Ok, Ok, 3%! 3%! 3%!"
"Good, now you understand."
Anyone has data on the actual amount in dollar terms of interest due to renew to principal and interest for the next 2 years in the country?
It really annoys me when writers say things without knowing the facts. This guy doesn’t know his facts -
‘River of money from China’. Actual is 3%. Far more property in NZ has been bought by Aussie’s, Brits, other Europeans.
‘Investors buying for capital gains’. In a recent survey, a surprisingly low number of buyers have purchased solely for capital gains. 2.64% to be specific.
Get your facts right please.
If a Chinese person gets NZ permanent residency (very easy btw, much easier than chinese permanent residency which is rare as hens teeth), they're not counted as foreign buyers in the stats. But I'm sure in your eyes Zhou Gong Fei who barely speaks English and has been in the same suburb of Auckland for over 4 years now is as Kiwi as paua fritters.
I’m really surprised that some of you still think that foreign buyers were 3%. Come on.
It’s been well documented that those stats are incorrect and that the number is far higher than that. Just look at the effect since the FBB was introduced with Auckland as flaccid as a pensioner who has run out of viagra.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.