OnPoint by Keith Ng

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OnPoint: Property Investment Federation: Just STFU

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  • Sacha,

    In summary, rents are constrained by demand, so it will be property prices that move.

    Demand is also a function of market expectations. It seems ours are being softened up so that the balance of fallout between tenants and landlords is shifted more towards tenants than a pure market might suggest.

    Pretty similar to the shift in wealth-share from workers to business owners/investors over the last few decades. It has been more dramatic in this country than Australia, hence the large wage gap now.

    Artificial housing markets have been a slight hedge against that for those who could get enough capital together for a deposit, but not necessarily enough to benefit from investing in our poorly-managed business markets or better still manage the risk by running or largely owning a company themselves (also often secured by banks against private housing).

    The problem crossed party lines. I recall Cullen appealing to workers to moderate their wage increase demands, while I never heard him ask shareholders to do the same with their dividends, high by world standards. Telecom's ongoing 85% payout levels left us without a modern fibre network and taxpayers are now being asked to subsidise one, just as we did with rural networks through PROBE.

    Socialising losses and privatising profit remains a tempting answer for the unambitious.

    Ak • Since May 2008 • 19680 posts Report Reply

  • Sacha,

    Depreciation makes sense and should be applied across the board.

    For things that have short lives and single owners, perhaps. If a house lasts say 50-100 years before it needs replacing, then what would be an appropriate rate per year? And how will that help the owner of the asset at the time it needs replacing?

    Ak • Since May 2008 • 19680 posts Report Reply

  • Sacha,

    More from the "it's not fair" 53-house landlord, and her export software business neighbour, Grant Straker.

    He said his business, which had sold website translation systems to the European Union, provided jobs, export dollars and big growth potential. Yet it could not get money from banks and had been forced to Britain for $2 million venture capital.

    Property investors, however, had easy access to capital, got big tax breaks but did little for New Zealand.

    "Here I am in business for 10 years, employing 18 people on PAYE tax and paying company tax. Yet the overdraft for our borrowings still has to be secured against our house because the banks won't lend against a business, especially software where you don't get any real money from the company until you sell it. All Pat Baker is doing is taking away houses from young people who could have bought them."

    Many readers demanded to know how much tax Mrs Baker was paying. She refused to say but she wants people to acknowledge that landlords provide a social service and tax rules should not be changed.

    She also seems ignorant of the difference between maintenance (deductible anyway) and depreciation, but then that's hardly a surpise judging by her previous utterances.

    Ak • Since May 2008 • 19680 posts Report Reply

  • Paul Campbell,

    we have to do something to unlock all that money invested in property so we can grow the rest of our economy, seems to me that leveling the playing field by taxing profits in that part of the economy the same way as everyone else is taxed would be a great place to start.

    I lived in the US for 20 years - there there is no 'capital gains tax' as such - it's all just treated as income whether it came from the sale of shares or a house or normal employment.

    There are two main exceptions:
    - the family home - you can avoid paying tax on income from selling a family home by buying another one of the same or greater worth - and (variously depending on which party changed things recently) you can either claim a $500k exemption every decade or so or a one time life-time exemption (usually when you retire and the kids have gone and you downsize)
    - there is a 'long term capital gains' tax in the US - you nominate an investment when you make it and if you keep it for long enough, 3-5 years then it's taxed at a lower marginal rate - 25% compared with 30something

    To me this solves most of the problems we have with a CGT or equivalent - it captures windfalls, equalises the property market with the rest of the economy, encourages long term investments (in property or other parts of the economy) and means that most people's main real-estate activity - buying and selling a home - is not effected.

    of course people find ways to rort the system (every other builder i met built himself a new home and lived in it every 3-5 years ....)

    Dunedin • Since Nov 2006 • 2605 posts Report Reply

  • Kumara Republic,

    Banks seem to suffer from the 'DFC disease' - after DFC's bankruptcy in the late 1980s nearly took the BNZ with it, the other banks went twice shy. To this day, these attitudes haven't changed much.

    The southernmost capital … • Since Nov 2006 • 5415 posts Report Reply

  • Sacha,

    It's lack of competence as much as confidence

    Ak • Since May 2008 • 19680 posts Report Reply

  • Just thinking,

    I was recently a witness at a tenancy hearing - we won with costs to be paid by the Landlord/Property Managers.

    I have the firm impression, that the Property Managers using a zero letting fee are seeing the bond as theirs.
    This was a common practise in Oz a few years back.

    A current affairs show who digs through a few court records might come up with an interesting story and constant course of action by certain companies.

    Putaringamotu • Since Apr 2009 • 1158 posts Report Reply

  • DexterX,

    Late post on this subject

    I consider the main reason for the tax change on rental property is not social equity or fairness to tax payers. It is to provide a disincentive for people to invest in property and the rationale behind it all is that it will move those investors into other forms of investment – equities and other financial products.

    This is a direction the fund management industry has “lobbied for” and wanted with a vengeance. As we now have a fund management guy as the PM then to me at least it comes as no surprise that this is what the government is delivering (for the benefit of the funds management industry).

    The theme in government is consistent you can see it in the Super City and other policy thrusts in that you deliver what you can while you can for the benefit of your mates. Labour was essential the same.

    The underlying problem is that the government is unwilling or unable to manage the domestic economy or provide the exports environment with a view to sustainable growth – the narrow focus on inflation and manipulating the tax system through family support and other measures coupled with the dubious quality of government spending on all manner of things is the real problem.

    Looking to create an environment where private investors are steered to consider indirect investment in financial products over direct investment in realty is not likely to work – the regulation and operation of financial markets is not as safe as houses. At least with direct investment in a house you still have something tangible and real at the end.

    One only has to look at the Huljich Wealth Management to see how distorted things can become and how poor legislation is and how a significant number of investors surveyed considered the investment in Kiwisaver is guaranteed.

    The depreciation issues on rental property won’t be significant for most long-term rental property owners and won’t cause a shift in investment patterns.

    I agree that everything is always full of shit in all sorts of ways.

    Auckland • Since Nov 2006 • 1224 posts Report Reply

  • Kumara Republic,

    I agree that everything is always full of shit in all sorts of ways.

    All shit is equal. But some shit is more equal than other shit.

    Seriously though, when DFC went under, nothing ever came close to replacing it. Not even the VIF or the most ardent angel investors.

    The southernmost capital … • Since Nov 2006 • 5415 posts Report Reply

  • Steve Barnes,

    Perhaps we shouldn't have sold it then?.

    **DFC**

    The decision to sell the Crown's 100% equity investment in DFC New Zealand Limited, New Zealand's largest investment banking organisation, was announced in the July 1987 Budget. On 28 June 1988 a sale and purchase agreement was signed between the Crown and a purchasing consortium of National Provident Fund (80%) and Salomon Brothers (20%). The price paid was $111.28 million; settlement took place on 18 November 1988. New Zealand Government Asset Sales as at 30 September 1999 - Completed Sales
    Published 30 Sep 1999

    At the time of its collapse in October 1989, DFC was New Zealand's seventh largest financial institution in terms of assets. In March 1989, its assets stood at aproximately NZ$2,900 million. DFC was a key player in the forign exchange market, and indeed, a leader in the development of the swap and option markets in New Zealand.
    Don Brash 5 March 1991

    So the Government of the day sold the old development fund to the old National Super fund at a massive loss, was that loss real? then changed the legislation to make it a private fund.

    The NPF superannuation schemes are unique in New Zealand as they are Government guaranteed, which means members can always be sure their benefits are secure.
    All 11 NPF superannuation schemes are closed to new members. However, if you were a member of an NPF scheme on 31 March 1991 you may be eligible to join certain NPF schemes. NPF website

    Please tell me I've got this totally wrong here Keith 'cos if I'm not then... WTF?

    Note.
    You may even be owed some cash from this mess.

    Peria • Since Dec 2006 • 5521 posts Report Reply

  • Kyle Matthews,

    Depreciation makes sense and should be applied across the board.

    Depreciation makes no sense on property. Depreciation is for assets like cars or computers that you get rid of after X years and replace with a new one. By allowing depreciation on property you are basically saying "run this into the ground and save up all the money in tax credits and use it to buy a new house".

    Clearly that's not what investers do with houses, and that's not the signal we should be sending. It doesn't even match what happens with property values, which typically go up, not down. Maintenance is part of the cost of owning rental property, and it's rightly a tax write-off.

    I became a property invester on Monday when tenants moved into my old house. The idea that I could depreciate it as a tax credit which I would pay umpteen years later when I finally sell it is nuts and I refuse to entertain such a thought.

    Since Nov 2006 • 6243 posts Report Reply

  • Steve Barnes,

    As we were talking about corruption, oh, we weren't but anyhoo I just came across this and had to have a small chuckle at the expense of Americas right wing nut jobs. Those Republicans with an enormous sense of entitlement.

    Peria • Since Dec 2006 • 5521 posts Report Reply

  • Logan O'Callahan,

    Depreciation makes less than no sense.

    A 100m2 house built in say 1970 for $10,000 and properly maintained (maintenance costs being deductible) would now be worth maybe $100,000 (or more, as this is only about half the cost to build a 100m2 replacement). So the well maintained building actually rises in value quite substantially over time.

    On capital gain in the property market. Increasing house size and increasing building cost ($ per m2) play quite a large part in the last 12 years.

    In late 1990s the per m2 cost for good quality work was around $1000, now the cost for comparable quality is around $2000. At the same time the average house size has risen substantially as well (don't have the numbers on hand so can't quote them). So the average residential building value may have gone from say 140*$800 to 200*%$1600, or increased by about $200k.

    Since Apr 2008 • 70 posts Report Reply

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