Budget moves against traders boon for property industry

While some in the property industry are pleased the IRD will receive more funds to crack down on black market property traders, others question whether it is necessary.

Friday, May 18th 2007, 12:09PM

by The Landlord

Property structures expert Garth Melville says the $14.9 million allocated in yesterday’s Budget to the IRD for auditing trading in housing may be a positive for the overall property industry rather than a negative.

Melville says “many” people have for a long while been taking advantage of the lack of policing of the unofficial property trading market or “black market”. They generally don’t form any business structure to carry out their trades, making quick sales by either assigning the contracts or owning a property no more than a few weeks.

The result, he says, is there is no automatic reporting to the IRD of the sale or the profit made. Therefore a higher purchase price can be afforded, but this creates “unfair” competition for the legitimate trader who is paying GST and tax on their profits.

“Many of my clients regularly complain about this unreasonable competition from the ‘cowboy’ traders,” Melville says.

He distinguishes unreported trading from “the acceptable practice of purchasing a residence, living there for say three years, improving it and then selling for a gain”.

However high-profile property trader Dean Letfus says the government’s funding of increased tax auditing of property traders is “entirely in keeping with the totally discriminatory tax policy papers currently being floated regarding associated parties”.

“This government assumes that property traders are avoiding tax in their droves and need to be caught and punished.”

As an educator in the property trading arena, Letfus says he can “only imagine” where all these illegal traders are hiding.

“I am actively involved on the cutting edge of property trading and I am yet to meet one of these supposed tax evaders,” says Letfus. “There may be a small percentage of people avoiding tax in this industry just like every other industry in New Zealand.”

“As it relates specifically to the property industry this budget is discriminating against a sector that provides much needed housing the government does not want to fund itself and an essential and reputable industry is being tarred and feathered without justification.”

The Budget also includes Treasury’s economic outlook for the housing market, and it expects a fall in house prices next year. The Reserve Bank’s interest rate hikes over recent times are expected to slowly have an impact as fixed rate mortgages roll off and onto a higher rate. On top of that, reduced immigration is also expected to slow demand for new housing, and residential investment is forecast to fall by around 5% in the year to March 2009.

But Letfus says, “to assume that immigration will drop off given we have the largest retirement population bubble in New Zealand history approaching is total head in the sand”.

“The government and Reserve Bank are trying to cool something that simply will not die. We are going to have a housing shortage and as the baby boomers retire net migration will only increase. Property will continue to be in short supply, which will increase prices.”

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