Otago Property Investors Association Inc

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29-06-2007

Inquiry into Housing Affordability – Submissions closed

In its written submission, the Federation rebutted accusations that residential property investors were to blame for the inflated property market and presented a case against suggestions of a capital gains tax or crackdown on loss-attributing qualifying companies, through which investors can offset losses on their properties.
 
The commerce select committee is expected to complete its inquiry within six months.
 

INQUIRY INTO THE FUTURE MONETARY POLICY FRAMEWORK – Tighter tax rules

 
As previously reported, Parliament’s Finance select committee is currently conducting a wide-ranging inquiry into alternative ways for the Reserve Bank to control inflation.
 
Of interest to the Federation were two significant developments during the month including firstly, a clear indication of the available policy option(s) favoured by the Government. The Minister of Finance the Hon Michael Cullen, in answer to a Parliamentary question on 12 June said:
 
“Ring-fencing property investment losses against other income would be a useful addition to the operation of monetary policy”.
 
And in a further Parliamentary reply, on 19 June, he said:
 
“The Government does not have a formal policy position on that. I personally believe that it is worth investigating, because since the repeal of those provisions in 1991 there has been very, very substantial growth in losses, which have substantially outgrown the actual rental income.
 
“That clearly points to heavy gearing of the purchase of rental property, and probably has contributed to an overheated housing market”.
 
[Ring-fencing would mean that tax losses on a rental property could not be set against income earned from other sources, but could only be retained to be used against any future profits made on the property].
 
This was further reflected by the Reserve Bank’s submission (to the Inquiry into Housing Affordability – see: www.rbnz.govt.nz/monpol/about/2989594.html) that also backed ring-fencing. It also suggested consideration be given to a capital gains tax (CGT) – as applies in Australia.
 
Given its anti-landlord stance it is not surprising that the Government’s coalition partner, the Green Party is in favour of tax changes on rental properties.
 
And secondly in stark contrast, in its oral submissions to the finance committee, the IRD’s Deputy Commissioner concurred with the Federation view that investors were not advantaged by the tax regime.
 
The Commissioner noted that rules about expenses for deducting costs such as interest, upkeep and maintenance, as well as paying tax on income were the same for investments in shares or anything else. He also said the rules were tougher for housing investment than other types.
 
Reassuringly for property investors, the opposition National Party has said it is opposed to a CGT and any changes to the tax treatment of rental losses. The United Future party also opposes a CGT.
 
Political party perspectives are relevant with general elections due next year with a probable change in administration.
 

REFORM OF REAL ESTATE AGENTS – Law to change

 
Last month the Associate Minister of Justice Clayton Cosgrove instructed the Ministry of Justice to undertake a comprehensive review of the Real Estate Agents Act 1976.
 
The review was been prompted by recent concern about the effectiveness of the complaints and disciplinary regime for real estate agents. Concern has also been expressed about the adequacy of entry and annual licensing requirements, the availability of consumer redress, and general regulation of real estate activity.
 
The Government proposes to amend the Real Estate Agents Act, introducing tougher licensing requirements and disciplinary procedures. Of interest to the Federation, the review will not apply to property managers or letting agents and is unlikely to affect the rental sector because of “lower risks”.
 
The Government’s rationale has been put as follows:
  • Leasing and management of properties typically involves smaller sums of money than is the case for buying and selling property;
  • Letting and leasing is a relatively frequent transaction for most landlords and for most tenants, and the greater level of experience of many of those involved means that they can be expected to be less vulnerable to the risks involved;
  • Most of the risk is usually borne by those who have property to let or lease, and who also select the agent acting for them and who are more likely than the tenant to be experienced and have the knowledge and /or relevant skill sets regarding the transaction.
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