The development of Auckland Council’s Unitary Plan is a focal point for the Auckland Branch, as are the issues of local government funding for infrastructure, RMA changes and responding to the need for earthquake strengthening.The recent pre-budget announcement that property transactions, in which properties bought and sold within two years would be taxed at the investor’s marginal tax rate appears to have struck some accord. It should not become a concern to the serious Property Investors who typically buy property as a long term investment strategy. The budget was presented by the Minister of Finance on Thursday 21 May and Queen City Law lawyers will post blogs on some of the details of this raft of small changes in immigration and property law over the coming weeks.
Do we need tighter rules on overseas investors?
Speculators who buy and sell residential property for profit within two years will be taxed on the capital gains in a move to rein in Auckland’s housing market.
Prime Minister John Key also announced a handful of measures targeting overseas buyers who have been able to escape paying any tax on their profits.
Key said the measures would be contained in this week’s Budget and the focus would be on ensuring people buying and selling property for profit paid their fair share of tax to the Inland Revenue Department (IRD).
The changes would tax capital gains on properties bought and sold within two years other than the family home or an inherited estate – but the government denies it is a capital gains tax.
The measures include:
* Requiring non-residents and New Zealanders buying and selling any property other than their main homes to provide a New Zealand IRD number.
* Requiring non-residents to have a New Zealand bank account to get a New Zealand IRD number.
* Including a new “brightline test” to tax gains from residential property sold within two years of purchase, unless it is the seller’s main home, inherited or transferred in a relationship property settlement.
* IRD would get $29 million extra funding to enforce the changes, which are subject to consultation and take effect on October 1.
Unfortunately it may have marginal impact on the affordability of Auckland property. This is demand led. The major impact on this is the freeing up of land and providing the necessary infrastructure, something that the Auckland Council, and in particular Mayor Brown does not want to do. Instead Len wants to play with his trains servicing less than 12% of the constituents. New Zealand does still have an over-reliance on dairy (it is one-third of our merchandise exports) diversification of the economy is happening, but happening too slowly compared to our demographic changes and the rate of change amongst our key trading partners. is now a serious risk to our economic security. Reserve Bank Governor Graeme Wheeler delivered ta similar message with a clear statement about the significant risks attached to falling dairy prices and the overheated Auckland housing market.
So what will the effects of the range of actions taken by the reserve bank and the government on the Auckland property market?
Property investor Olly Newland predicts that the Reserve Bank’s new Auckland-targeted house market restrictions will have a shelf life of less than 30 days. In his article on Interest.co.nz he states
“The biggest effect will be to push investors into the provinces where prices are much more reasonable. If you are living in Hamilton, Huntly, Mercer, Cambridge , Tauranga, Thames and all the other areas North and South of Auckland City you might be either getting very nervous or gearing up for a bonanza. The good Governor has even raised the amount allowed by banks for lending in these in these areas from 10% to to 15% so look around and take note. There could well be a wave of investors heading out of Auckland to a place near you.”
Auckland continues to thrive as a city. It is our only truly internationally competitive city, and attracts a great deal of business activity and income for our country. However the April ANZ Commodity Index showed prices across a range of commodities had dropped 15% in the last year. In dairy the last of the $8.40 farmgate payments are happening now. The latest forecast payout for the coming season is $4.50. That represents $7 billion coming out of the New Zealand economy. Cash that will be coming out of regional farming communities. This may see stress on some service providers and increase the supply of some interesting commercial properties.
However Auckland is indeed bursting at the seams. Auckland Council estimates that there is an historic shortfall of 20,000 houses in Auckland. They need to build a further 10,000 a year to keep up with demand but in the last year only 7,700 building consents were granted. In turn average house prices in Auckland have exploded to $800,000, rising by 18% in the last year and 60% rise since 2008.
“This matters to all of us. If the bubble bursts it will cause ripple effects across New Zealand. Domestic demand in the economy is high at the moment, and some of that is built off the apparent wealth of Auckland property owners. Moreover it is no exaggeration to say that you are paying higher interest rates today in Dunedin than you should be if it were not for the Auckland housing crisis. The Reserve Bank Governor would have lowered interest rates, now among the highest in the OECD, if it were not for his fear of pouring petrol on the overheated market.”
Another effect could well play right into the hands of investors with rental property. One of the reasons that Auckland rents are still so reasonable is that investors are providing large amounts of rentals which keeps prices down If investors withdraw from the Auckland market, the long term effect will be fewer houses to rent and higher rents as a result. Those investors who hang in may soon thank the Governor for his foresight and generosity. The regions of New Zealandhave been feeling neglected and left behind. Could this lead to a revaluation of regional land?
We have come to understand the regional inequality as being about what is happening in regions like Northland, Gisborne or Wanganui, and there is much to be concerned about there. There are serious imbalances in the Auckland housing market butt these imbalances have existed since the 19th century. Impulses of speculation and regulation have lead us to a fractured environment for real estate developers. The results have been amplified by the recent acceleration of demographics changes as New Zealand exits its adolescent and takes up its very adult role on the Security Council.
Marcus Beveridge is a leading Auckland property lawyer and owner of Queen City Law. QCL are very proud to be providing one stop shop legal services to some of New Zealand’s leading and most innovative companies. Read more articles by Marcus here
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