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Go pick on someone your own size

Friday, September 11th 2009, 12:25PM 11 Comments

by Philip Macalister

Property investors could well feel battered and bruised after many of the comments made in the media, following yesterday’s official cash rate announcement.

I’ll put it on the record now. Much of this property investor bashing is totally unwarranted. There is a perception, which is wrong in my view, that all these investors are hell-bent traders and speculators, buying and selling residential properties non-stop.

Wrong. The large majority of the investors we deal with through the NZ Property Investor Magazine and are conservative, buy-and-hold investors.

Some people chose to invest in shares, others prefer managed funds, while others go for cash and fixed interest. Many people have decided that property is their preferred means of saving and providing for their retirement. There are lots of reasons for this, and all of them quite valid. They range from the desire to hold something tangible they can see, touch and feel, through to having poor experiences in the sharemarket.

So I often come across investors who feel they have been unfairly castigated and discriminated against because of their choice of investment. Their view is at least they are doing something to plan for their retirement and aren’t relying in taxpayer-funded pension from the state.

Investing in property is not like some of the other asset classes. Yes, there are different tax rules and there are benefits like depreciation and gearing.

What seems to get lost in this debate is that these people are not only investors. They are running a business providing a service to fellow New Zealanders. Therefore, they quite rightly can use some of the same structures as business owners, such as loss attributing qualifying companies (LAQCs).

The other thing which surprises me is some of the comments about putting a capital gains tax on property investors. For the record, there already is one. The Inland Revenue Department is on a $15 million, three-year education and enforcement campaign to enforce this part of the law.

Already it has pulled in hundreds of millions of dollars in unpaid tax.

One comment I do agree with from Dr Bollard is this: He says New Zealanders should not consider housing investment to be a one-way bet. Investment expectations need to be realistic. We won’t go back to the boom times of the past eight years. However, in the long run, property prices, like those of other asset classes, tend to appreciate.
« More house price rises predictedStop the misleading talk around property »

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Comments from our readers

On 11 September 2009 at 2:14 pm Paul said:
There are x amount in houses in New Zealnd.
Someone has to own them, if its not new zealanders who will it be ?
A huge amount of people rent, who does Bollard think they are going to be renting houses from ??

Does he want us all to keep our money in the bank and leave the houses to be owned by the state and foreigners ?
On 11 September 2009 at 2:37 pm Aileen Cutting Gardner said:
Hello, I am sorry to say this is the go I was in parliment
in front of Daziell for the Loss Investors of NZ yesterday
and she just hit back saying why do you kiwis invest in Finance Cos and Houses, my reply to her was do you - oh no
leave my money in the back, my reply was because you earn
four times the amount of the average worker in NZ. I have houses and now at 65 years I am able to retire on two supers
luck me, and able in 18 months to cash up to buycar/holiday
I have been able to help my family get into houses by mortgaging myself to a stage and them taking over the mortgages, why dont they bug off and leave us alone, brought my first house when I was 21 now 65 loss a bit, gained a bit, not much but most of learned a hell of a lot.
have a good and good investing -
On 11 September 2009 at 3:14 pm tess nicholson said:
I couldn't agree more with your recent comments. I have been in the market investing in property since 2001. There seems to be this perspective that all property investors are greedy, making lots of money off of people and in some way causing all the issues we have today.
It is a very one-eyed view with little substance to it. I, like many other investors have had big issues with tenants, have to put money in often to shore the investment up and I might add provide housing for people that the Government cannot provide for.
I am simply interested in having some savings for my retirement, and this is one investment I understand better than any other.
On 11 September 2009 at 3:41 pm Dave said:
ok some of us have worked hard and instead of shares or the Bank or money trading have invested in houses for rent . When my wife and I payed our own house off we read a few books (Dolf De Roos , jan Sommers) and decided thats what we would do for our retirement . Always keeping in mind a lot of people are not so fortunate . So we have always kept our rent lower than the market rate . If we get penalised with capital gains tax or somme other type of tax we would have to think about raising the rent. And who is going to pay for it THE PEOPLE WHO CAN LEAST AFFORD IT
On 11 September 2009 at 3:41 pm Lorna said:
Amazing all this talk of hitting investors in the pocket. Or maybe not so amazing. Everytime people try and provide for themselves, someone in "authority" wants to move the goal post.
On 11 September 2009 at 3:50 pm Jo said:
Good article - well said. I suspect a lot of these complainees have vested interests and would rather people invested in their pet project instead.
Agreed Paul - it has long been acknowledged by a range of government agencies that if it were not for the private rental housing market there would be an even greater shortage of housing accomodation.
On 11 September 2009 at 3:54 pm Robert said:
I work and have worked in the financial services industry for 20 years (mostly with super and managed funds) and have a number of long term property investments. As a cash investment, new PIE investments with tax free capital gains and tax capped at 30% have far greater benefits than my property investments. The property has one real advantage being financial leverage. While this can be achieved in managed funds, it's not so common (and banks do not come to the party).

Personally, I don't believe the issue is tax as tax benefits in managed funds can be greater, it's the investments themselves. NZers have greater belief and have got better long term results from property, we either own our own or invest in them, as our parents did, so we are comfortable with them.

I can't see what is wrong with this and why we owners are always at the sharp end of the stick. As Paul states, someone has to own them. We do the government a great service housing 40% of the population, what would happen if the 250,000 property investors decided not to invest in this area...??
On 12 September 2009 at 12:24 am Arthur said:
Two sides to this. I have commercial properties, purchased over 20 odd years because they were profitable from day one. Pretty weel impossible to get proper returns on todays prices.
If a property is purchased that is un profitable and the owner relies on a LAQC to lessen the loss, then that owner is not an investor/landord, that owner is a speculator relying on capital growth to turn pre tax income into tax free gain. This type of property is very easy to spot, poorly maintained, rough and low quality tenants. You see them everywhere.
The tax treatment is the problem and that requires fixing. I agree that an acroos the board capital gains tax is not the ideal fix, neither is a property tax which is being discussed and thats worse than capital gains tax.
The wider effect is over valued property compared to incomes. The funding for value increases has and is via imported money. Our exporters just cannot sell enough stuff overseas to keep ahead of the real estate debt. That is why we are the second most indebted nation in OECD and why rightly Dr Bollard is concened. We should all be.

Property owners with debt are the biggest importers (money) in the country. They are spending all our exporters income.

Interesting when I brought my first site, the ratio to income was 3 to 1. My son is trying to buy a first home for his new family close to a transport hub as he works in the CBD. Based on the average income the ratio is a massive 15 to 1 and the properties are old and average.

We should support Dr Bollard and lobby for useful change, not run him down.
On 12 September 2009 at 10:54 am Richard said:
I notice how the banks are sitting back quietly while property investors get the blame for everything from dodging tax to Dan Carter missing drop-goals.

The last NZ property boom was only made possible by banks doling out credit hand-over-fist to anyone able to make their mark at the bottom of a loan document. And, unfortunately for some, money was lent to people - and I mean no disrespect to them - who didn't really have the capital or income to put a flat-screen TV on tick, let alone a house. Some of them probably didn't know any better - but the people who should've been advising them; loan managers, lawyers and so on, did and do know better.

I'm not saying that we property investors are completely blameless; I know several people, some of them still having the gall to call themselves "investors", who had quite the little cottage industry going: buying property, telling the IRD they were "rentals" or "family homes", flicking them on and then pocketing a nice tax-free bonus.

I have no problem with the IRD hammering these "investors"; they give the rest of us a bad name.

So let the public scorn go to those who deserve it: the property speculators who try and get out of paying tax (oh, and the money lenders who enabled them to do it in the first place).
On 12 September 2009 at 6:15 pm Bob said:
Let the IRD loose, but the real investors that buy and hold should be helped not hindered.

Simply put - an investment purchased and held for a period of say seven years ought to be exempt the property tax or capital gains.

Thus the real investors are proven whilst those who cheat by stating the intention of purchase is for investment then flipping properties for a quick tax enhanced gain, will show up and are fair IRD fodder!
On 1 April 2010 at 2:09 pm Beau said:
People who dont invest in their own financial education are people who arent willing to be responsible for themselves.

And then when "stuff" hits the fan, they look for someone or something to blame, whether it is the government, or the "rich people".

Its always someone elses fault for why they are suffering, but they dont realise their own potential for lifting themselves, their family's, their friends and their communities out of the hole - and this inability to realise their potential manifests as poking the finger at someone or something else.

I wish they would make financial education a MUST at school.

A Kiwi living in Australia....

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