Property investors unfairly singled out

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Ring-fencing – it’s a term that will make most property investors shudder.

Tuesday, July 3rd 2012, 12:00AM 3 Comments

by The Landlord

And the Government is making moves to have it written into law this year.

Granted, at the moment it only applies to losses on holiday homes that are rented out to the paying tenants.

But once something exists in legislation, it’s much easier to have it widened to include more and more things.

The NZ Property Investors Federation and other experts have already flagged the possibility that this may be just the start of wider moves to ring-fence losses on all property investments.

The move, announced by Revenue Minister Peter Dunne, to ring-fence all losses on holiday homes where income is less than 2% of the property’s land value, is the first time that losses have been tied to value.

If it were extended to the wider property market, all residential property investors with high-value properties, or high-interest borrowing, and relatively low rents, would be caught out. The consequences could be enormous.

The Auckland Property Investors Association says – and rightly – that most property investors should be aiming to make a profit, not a loss, so ringfencing shouldn’t be an enormous issue.

But for many property investors, a few years of losses are the price that has to be paid to get into profit-making territory.

In that time, they are providing a valuable service – you only need to look at the papers to see evidence of a massive housing shortage in Auckland and Christchurch, in particular.

And these losses are genuine losses, money that actually comes out of an investor’s pocket in the day-to-day running of their business.

Why single property investors out to be unable to offset this loss against their income? Isn’t it time the Government started to look at other things, such as the cash economy, or undeclared foreign incomes?

Surely there’s more tax revenue to be earned there than in ring-fencing the genuine losses of property investors.

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