As the vitriol builds against property investors it’s becoming increasingly clear that there will be many innocent bystanders injured by the mooted changes to tax law.
Whatever merit there may be in rooting out the landlords who are rorting the tax system must be weighed against the damage caused further down the line – which, you’d think the technocrats would be investigating this very minute.
What has surprised me this week is the fund managers I’ve spoken to – most of whom have constantly moaned about New Zealanders’ residential property obsession – were fairly muted in their support for the proposed changes to the property tax rules.
One told me that while the funds industry might benefit from a boot in the head to property investment there was also a strong possibility that New Zealanders would just sit on devalued property that no-one wanted to buy.
“And if they can’t turn property into cash they’re unlikely to buy more equities,” he said.
Similarly, comments from Craig Stobo, chairman of the AMP NZ Office Trust (ANZO), contained in the fund’s half-yearly results are illuminating.
Stobo is no particular friend of tax-deducting landlords and in his past life as head of BT NZ funds management he no doubt railed against the residential property sector.
He was also instrumental in designing the new investment tax rules that resulted in the PIE (or Portfolio Investment Entity) regime, which theoretically gave fund managers an edge over individual punters.
However, in the ANZO statement Stobo points out that many elderly investors bought into listed property trusts in the belief they would provide steady retirement income and were not chasing tax benefits.
“The burden of these proposed taxes is therefore going to be borne by investors who have taken steps to provide for their future, and the businesses which are providing jobs for the current generation of workers – neither of which have much ability to absorb new costs in the current economic environment,” Stobo said.
“New Zealand’s relative competitive position on the global stage and ability to attract capital from overseas investors will also be diminished by any new taxes that are imposed.”
While it might be exciting to whip up hysteria against rentiers it is worth remembering that not all people invested in property in order to depreciate the toilet.
Tags: David Chaplin
I can see more benefit in
1. changing the tax write off from interest paid to a “once off” write off of princpal repaid on investment properties. This discourages extreme leverage cycle and negative gearing.
2.The principal claimable be capped to say a 10-15 year term. Bank’s would be encouraged to lend on the borrower’s “real” capacity to repay the full loan amount rather than just the interest and eliminate the “just servicing interest culture”
3. Require bankers and lenders to have an decreasing gearing % limit ie 80% one rental, 70% for 2 60% for 3 etc.
2. This could also apply if you purchase shares via loan hence provides an investment incentive.
3. Restrict the numbers of LAQC’s a person can have.
I think whatever happens people will push the rules,but as you rightly point out by hitting the rental market too hard it may will stifle the whole economy for many years. Instead it must allowed time to unwind.
As someone pointed out to me, the sharemarket will be hit hard by the removal of depreciation. Every share in a business benefits from depreciation (and listed businesses depreciate property too) and passes the tax benefits on to the shareholders. The much vaunted depreciation inequity between shares and property does NOT hold; just because shareholders do not understand the balance sheets of the businesses they hold shares in does not mean they are not benefiting from depreciation.
Can someone please explain why we have the ability now to reduce income by claiming for depreciation. I thought it was to account for the loss in value of a property when it is rented out and thus used. This is a cost,although not a cash item. The alternative to the depreciation system would be to allow the full write off the cost of property upgrades. I would appreciate some thoughts on this, for I am no expert.
Regards to all.
8th February 2010.
We all know landlords are rip-off merchants, yeah right!! What has not been commented upon are the rorts perpetrated in the corporate sector that we can see but to which the government conveniently turns a blind eye. They are seen by landlords. For this very reason property owners do not trust corporate management and prefer to manage their finances themselves, losses they can see coming and take preventative action. The corporate fat-cats hide the truth to collect their payouts and golden handshakes to depart after the collapse leaving the gambling mess to the shareholders who cannot claim any recompense.
As a retiremtn fund I prefer to manage my own affairs, at least I can do something about trends that I see but ‘managers’ do not.