Capital gains tax and tighter lending for Auckland

This year’s Budget (21 May) will include important changes for property investors. In a pre-budget statement, the Prime Minister said those who buy and sell investment property within two years will be taxed on the profits, regardless of their intention at the time of the purchase; and controls on foreign property buyers will be tightened.

The measures include:

  • A new tax on 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. The gains will be taxed at standard income tax rates.
  • Non-residents and New Zealanders buying and selling any property other than their main homes to provide a New Zealand IRD number. Non-residents will be required to have a bank account number before obtaining an IRD number.
  • To enforce these new measures the IRD will be allocated an additional $29m for audits.

The changes will take effect from 1 October and are in addition to the existing rules, which require tax to be paid on investments (regardless of the type) made with the intention of resale.

The Prime Minister said the new measures, “…are aimed squarely at ensuring that property buyers, including overseas speculators, who buy residential property with the intention of settling for a gain pay their fair share of tax as required by the law… It is not unreasonable to expect that if you buy an investment property and sell it for a gain within two years then you should be taxed on that gain.”

A review of the Budget policies will be published next week.

These new measures  follow last week’s announcement by the Reserve Bank that it will impose greater lending restrictions on property buyers in Auckland. The proposed changes are:

  • Residential property investors in Auckland will be required to have a minimum 30% deposit.
  • Banks will continue to be limited to 10% of new mortgage lending to Auckland owner-occupiers with deposits of less than 20%.
  • Outside Auckland, however, banks will be allowed 15% of their new mortgage lending to low deposit buyers, rather than 10% as now, which the Reserve Bank said reflected the more subdued housing market conditions outside the area.

 

 

These measures are designed to reign in the Auckland property market, while loosening the reigns elsewhere. The general view is that the new measures will take about 4% off annual house price inflation in Auckland, which may be insufficient to deter speculative demand given property values were up 13% in the last 12 months.

It remains to be seen whether a consequence will be more Aucklanders looking to invest in provincial cities. There is only so much the Reserve Bank can do, and this is about as far as it can go. If the real problems are to be addressed then it will be up to central government to bring local councils into line. Essentially Auckland’s housing crisis has been created by silly planning rules promoted by “save the planet” planners, and development impact fees imposed by money-grabbing councils.  With such significant interventions it is little wonder the free market has been unable to provide more affordable housing.

Comments are closed.