Death & The New Zealand Capital Gains Tax
The great thing about a good holiday is the ability to escape reality, even for a little while. But having enjoyed our fair share of lazy beach days, we’re back on deck, refreshed and ready to tackle whatever 2019 throws at us. That includes educating ourselves about possible changes which have the ability to impact our market.
The tax working group has suggested the time is right for the introduction of a capital gains tax for all investment properties. Any change to the status quo has the ability to impact the market, mostly due to the uncertainty (or fear) surrounding the outcome of any changes. Here are a few ways I believe the market could be impacted if a capital gains tax was introduced:
What impact will capital gains tax have on rental properties?
Buying rental properties in New Zealand has become increasingly difficult recently due to a number of factors. These include changes in the Loan to Value Ratio (LVR), changes to depreciation and tax ring fencing, and the introduction of Healthy Homes Bill (which comes into effect on 1 July 2019). If you take all this into account and then drop in the potential of a capital gains tax; the pool of buyers looking to invest in property is limited.
The net result is that we are likely to see more entry level stock coming to the market, a real positive for first home buyers and home ownership rates. The downside is there will be fewer rental properties available. This will put upwards pressure on rents which is an issue for all markets, but in particular Wellington and Auckland, who’s rents are significantly misaligned with the average wage. Also, because traditionally we have relied on the private sector to provide most of the rental accommodation, any major reduction in this area will put pressure on central government to solve what will then become a rental accommodation issue.
How will capital gain effect market value?
The train spotters of the real estate industry will be aware that in 2016 a foreign buyer’s tax was introduced in British Columbia to reduce demand and make it more affordable for locals to purchase. This had the desired impact, at least initially, with evidence indicating a drop-in value of 30% within the first year.
Fast forward to 2019 and Vancouver is still the least affordable city in Canada. Just as we have observed in other markets; they eventually recover, adjust to the new norm and continue to grow.
Will holiday homes be subject to capital gains?
Holiday homes have never really stacked up as a good investment. They’re used but a few weeks a year and are expensive to run and maintain. They have always been considered a luxury and not a savvy use of spare capital. But now many of our favourite holiday destinations (like Mt Maunganui), have also become desirable places to reside.
The upside for owners is that after years of expenses they’re now enjoying the capital appreciation. It will be interesting to see how holiday homes will be affected by such changes. Will this see the end of the good old kiwi Bach?
The Wellington Real Estate Market
The year has started with new found energy and we’re experiencing a notable increase in open home numbers from last year. We anticipate they will ease a little as the numbers of listings increase but it is still encouraging for vendors.
In many ways, it is too early to tell just how the market is holding up and whether we will see prices on the rise or holding steady, so stay tuned for the next round or give us a bell to chat it through.
WELLINGTON MARKET QUICK FACTS
Average sale price by Ward:
What’s on this February in Wellington:
- Te Rā O Waitangi, Waitangi Park, 107 Cable St, Wellington, Wed 6 Feb 2019 12:00 pm – 7:30 pm
Waitangi Day is all about coming together to celebrate Aotearoa and what better place than Waitangi Park! Bring your friends and whānau along for kai and kapa haka at Te Rā o Waitangi on the 6th of February. There’s a line-up of award-winning Māori performers as well as activities at the lagoon all day. Festivities begin 10am at Te Wharewaka o Poneke. Then at noon, head along to Waitangi Park for live music.
- Summer Pop-up Village, Taranaki Wharf, Taranaki St, Wellington, Mon 4 Feb – Sun 3 Mar 10:00 am – 4:00 pm
Every summer the Wellington waterfront is filled with a unique splash of local design. Discover a collection of containers featuring local designers on Taranaki St Wharf (near Te Papa). Talented entrepreneurs, artists, and makers with everything from pop-up gift cards to resin jewelry & art prints. Follow your visit with an ice cream or coffee on the waterfront.
- Chinese New Year Festival, Queens Wharf, Wellington, Sat 9 Feb 7:00 pm and Sun 10 Feb 2019 10:30 am
It’s the Year of the Pig – Saturday night and Sunday is packed full of activities for this amazing international celebration. East Meets West Show on Saturday night features entertainment direct from the Jinan Acrobatic Troupe, Shandong Province, China plus some of Aotearoa’s finest performing artists. Followed by a spectacular Fireworks Display on Wellington Waterfront to ward off evil spirits and bring good luck and fortune for the coming year. Sunday starts early to bring you the Asian Market and a full Cultural Entertainment stage programme, definitely something for everyone – delicious foods and craft/calligraphy/culture stalls.
If you, or anyone you know, could benefit from a considered market assessment by Wellington’s only licensed agent and registered property valuer, please do not hesitate to call. We are always very happy to help.