Ever since the tax working group’s recommendations have been made public, the activity in the property market has slowed down considerably. Though the prices have been more or less stable, the number of sales has gone down and it is taking longer to sell the houses. The supply is on the rise as some of the investors have become panicky. They fear that property prices will go down once the tax benefits enjoyed by property investors are removed. To make the matters worse, the politicians give statements in public about proposed tax changes, which are not concrete steps and it creates more confusion in the minds of public. Still it is highly uncertain as to what government will announce in forthcoming budget which is due in the month of May.
There is a sharp division of opinion among members of public about the proposed tax changes.
Some, particularly those who do not own houses at present want the tax benefits to be removed so that investors turn sellers and prices go down. They expect that this way the houses will become more affordable and they will be able to buy. Some of the experts are also of the same opinion.
Even if the property prices go down, how many of these people will be able to buy houses? It is a big question. For some, raising money for deposit will always be a problem. For some others, their personal credit issues will always be a problem, as there are no lenders who will sanction them a mortgage. Similarly there are many people who will remain invested in property even if the tax benefits are reduced. For them, the property investment is the safest investment. The selling pressure may not be that much as is feared.
I have read different comments in response to articles in media where many people feel that property investors do not do any service to society by investing in properties and renting them out. It is true that a capitalist invests money for his own profit, but if we look at different economies, these are the capitalists who invest and create employment opportunities for others. Of course they do not do it for charity, but it will be unfair not to recognize their contribution to society. Similarly most of property investors have built property portfolios by working for longer hours, saving money by sacrificing their life style. They are doing a service to society by buying houses and renting those out to those who cannot afford to buy. Even Housing New Zealand is dependent on property investors to fulfill the demand for housing.
The Government should do whatever is required to create a balance in the economy. The distortions need to be removed. The other areas of investments should be promoted. But it is not right time to be harsh to property investors and spoiling the housing market and thus economic recovery.
Everyone needs a roof on his/ her head. New Zealand population, particularly Auckland population is growing each day. More and more houses are needed. In case of lack of first home buyers, property investors fill the gap. So Government should avoid making any drastic changes.
Till the budget is announced which is still a couple of months away, home buyers and property investors should not become panicky. Remember if the proposed changes in taxation turn out be less than what is feared in market, many of the listings may be withdrawn and many of those who are thinking of buying after the changes may become hot buyers. It may push the house prices higher.
Ravi Mehta is an Auckland based Financial Advisor and can be contacted on ravi.mehta@pfsl.co.nz. A disclosure statement as required under Securities Act 1988 is freely available on request.