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Issue Red Herring To Increase Taxes??

Thursday 24rd February 2005

Tax Treatment Not The Biggest Issue In Investment Decisions Into Property Says Property Institute.

Issue Red Herring To Increase Taxes??

The New Zealand Property Institute today said that comments by commentators that taxation treatment was the big deciding factor regarding New Zealanders propensity to invest in property were wrong.

This follow comments from Finance Minister Dr Michael Cullen, that New Zealanders should invest more in the sharemarket.

Property Institute CEO, Conor English said today, "Maybe New Zealanders should invest more in the sharemarket, or maybe not - but the issue is not tax. Returns from that market on average have increased and performed well over the last year, but they can vary significantly between companies.

"However the biggest key driver of New Zealanders investing in their homes or investment properties has not been tax treatment or depreciations rates. Rather it has been their ability to leverage and borrow funds from banks to do so.

"If "Sally Kiwi" on the New Zealand average income of $29,346 (2003/4), or her and her partner on the average household income of $60,433 (2003/4), went to a bank to borrow money to buy a house, they might be able to borrow up to 100% of the purchase price of a home. Depending on their circumstances, they may even be able to borrow several hundreds of thousands of dollars

"However if Sally and her partner went to the bank to borrow say $250,000 to invest in shares, the answer would likely be no. We have yet to be convinced that this is because of tax treatment of property.

"As a consequence of banks preference for hard assets to lend against, for whatever reason, two thirds of New Zealand's 1.44 million households (2001) own a home. And household debt levels have increased dramatically from $68 billion to $114 billion over the last five years, and almost 70% increase.

"There are little taxation advantages of owning a home, if any. NZ home owners, unlike some other countries, cannot claim interest costs or depreciation against their personal income. While they don't pay capital gains tax if they sell their home, neither do people who are long term holders of shares as they are not trading the asset for revenue income.

"Property values have been driven primarily by lower interest rates, higher immigration, a dollar that made it very attractive for overseas people to invest in New Zealand, and a renewed spotlight on New Zealand following September 11 and the Lord of the Rings movies.

"In the last five years 413,170 people have arrived in New Zealand on a permanent and long term basis, which has pushed up demand for housing.

"The Reserve Bank understands that it is credit growth that helps stimulate property values rising, which is why it has put up interest rates six times over the last 12 months, trying to slow the market down.

"Perhaps all this talk from the Finance Minister is just to pave the way for introducing a new tax on New Zealanders who own property!!," Mr English speculated.


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