Tax not enough to slow market

A range of measures has been announced by the Reserve Bank and the Government in recent weeks to slow down the property market, particularly in Auckland. One change is that any property sold within two years of purchase will be subject to capital gains tax.

The main exception is that this wouldn't apply to the seller's own home. Which begs the question as to how many properties this new rule is likely to apply to.

We looked at all residential sales during 2014 to see how long properties had been held.

The first thing that jumped out was that there was a definite difference between Auckland and the rest of the country. Amazingly, in Auckland the most common property-hold period was less than one year.

For the rest of the country the most common hold period is seven to eight years.

Of the 86,000 sales nationwide in 2014 almost 10 per cent (8400) had been held for less than two years. In Auckland the percentage was much higher -- almost 15 per cent of 31,000 sales.

Looking back over previous property cycles this increased turnover of properties held for a short time is commonly seen during times of increasing values.

When the market is flat or declining then, not surprisingly, this behaviour tends to lessen.

The fact that it is primarily happening in Auckland and not the rest of the country is further evidence, as if we needed any, that the Auckland market is quite different.

Some of these properties that sold quickly will be the "sellers' main home", so not liable for the capital gains tax. We estimate this to account for around 60 per cent of sales, leaving 40 per cent of 8400 sales nationwide, about 3360, that would have been up for the tax.

So the question is whether this tax will slow down this speculative behaviour and therefore the market. I would expect the speculative behaviour to slow, but I'm not so sure it will slow down the whole market.

Given that we have a supposed housing shortage in Auckland then I would expect strong demand for property to continue from first home buyers, movers and longer-term investors, beside those in it for short-term gain.