KEY POINTS:
Government talk of dampening investor enthusiasm in property and speculation about a capital gains tax has sent shivers through New Zealand's 230,000 property investors.
But a capital gains tax on property sales may not be the political suicide it once would have been, says Martin Evans, President of
the New Zealand Property Investors Federation.
"Capital gains tax is getting more ground support," says Evans. "There is more [bad] publicity about property investors. They say they are running the country, saying that they are getting more advantages than other investors."
Ashley Church, CEO of the Auckland Property Investors Association says a gains tax would hit average Kiwi homeowners.
"Obviously property investors generally could be concerned that they are an ongoing target of the Reserve Bank. The other concern is that the people who are continually hit by the measures that they are proposing are not property investors, they are just mums and dads sitting in their own property, they are the ones who get hit."
The National Party told the Herald on Sunday that it was against a measure as extreme as capital gains tax. "National doesn't support capital gains tax and we do support the IRD enforcing current law on short-term property trading. They should anyway, regardless of what the Reserve Bank says," says National finance spokesman Bill English.
"The problem is to distinguish between speculation which people resent and legitimate investment. The second problem is defining the scope and rate of a capital gains tax well enough to make it effective.
"The current law has a stab at defining speculation and I'd prefer to see that enforced. We haven't seen any capital gains tax that is worth the complexity and compliance," he says.
English says the view that property investors are favoured is unfair.
"The savings industry believes housing is tax favoured but tax law treats interest on borrowings, capital gains and tax losses the same for most forms of investment."
English points to some news which might alleviate the Reserve Bank governor's fears. According to the Spicers Household Savings Indicators, for the first time in more than six years the annual increase in housing assets (10.4 per cent) was surpassed by gains in financial assets (10.6 per cent). Housing appreciation does, however, remain the biggest contributor to the growth in household net worth, 9.7 per cent during the year.
Chris Evans says New Zealand investors might have to look elsewhere if some harsh new taxes came in.
"New Zealand is the best country in the world to invest in real estate, because you pay no stamp duty, no capital gains tax, and the mortgage is tax deductible. It makes it very attractive here but there are opportunities for people to invest overseas," says Evans.
Award-winning Auckland property investor, Garth Cutfield, said he had come across people who were abusing the system.
"I meet a lot of people who are investors and they believe that if you only buy and sell one or two properties a year there will be no tax on gains. These people should be paying tax on their gains, but they firmly believe that they should not be. When I advise them that they probably should and that they should talk to an accountant, they go into denial. In all cases from my experience, these people do their own tax returns, and don't employ an accountant."
He adds: "I am a little apprehensive that the IRD could make changes which could amount to using a hammer to kill an ant. If they make sweeping changes, it could hurt not only the black-market traders, but also property investors and businesses."
Cutfield points out that true long-term property investors were providing a much-needed service to New Zealand's tenants.
Meanwhile, property investing is becoming more expensive, particularly to those who are buying cash negative properties and topping up the property's costs in the hope of good capital growth.
"Things are going up all the time: mortgages, council rates are going up hugely, it all makes it more difficult for property investors," says Evans.
Another of the threats making investors think twice about staying in the industry is the talk about abolishing the Loss Attributing Qualifying Company (LAQC) regime - a favourite vehicle for property investors. The Government suspects it is being used as a way by property investors to reduce their overall tax liability.
Paul Kinley, President of the Canterbury Property Investors Association said his members were bracing themselves for a more vigilant IRD.
"I think they are so slow. People get caught three years down the track for something they did three years ago," he says.
Meanwhile, the NZPIF said the Government would run any big changes past the association.
"They see us as the voice of private property investors; they try to ensure they include us in most things," says Evans. "Regarding taxes, they might not consult us. Taxes would just be between the IRD and Cullen."
Auckland investor Sally Officer says she is not letting the talk bother her. She has 18 properties in her company, Nest Properties. She is resigned to a capital gains tax coming at some stage.
"Probably, it eventually has to come but not in the short term; such a huge percentage of the population own property, There would be a public outcry," she says.
The ability to buy a $130,000 property, do up and sell it for $200,000 has gone, adds the Auckland investor. "Now you are having to pay $240,000 for this rough house and you are selling it for $280,000. There is not the margin any more and the generation of value," she says.