Triggered by so much public opinion about property investments I had already a look at the fundamentals of Capital Gains the other day. Yesterday I had a quite interesting discussion about it. In the nutshell the figures I used for explaining Inflation and Capital Gains by using figures from my family home don’t represent a common investment property. Right, I did it by purpose to show you how far New Zealand's housing standards are behind the developed world. No question about homeowner’s lifestyle that differs from renters - so we speak about different housing needs.

The National Housing Standard for investment properties is cemented on the level of state housing. With all the new regulations for investors everything above this level is over capitalized. That becomes very clear with the debate about CGT. Investors don’t get paid above this standard because of zero depreciation on business assets, difficulties to offset loss (LAQC issue) and get penalized with tax for spent money for pushing up capital gains on home improvements. How adverse for renters is that?

In fact TAX on selling investment properties is already in place. The experts who are writing articles about CGT should know that. For investment properties sold before 10 years ownership and homes for private usage that cannot be proved otherwise sufficiently to the IRD are already due for income tax on sale. Maybe 15% CGT is even better then being taxed on personal or business tax rate, would you agree?

The drivers for new tax might be another one – money and the taxman will take it from the only people who can save the nation by spending money wisely. CGT is based on capital gain. It would be fair to pay on capital gain and get a refund by dropping values, right? But who then will pay for government's bankruptcy?

As I read in “The Wellingtonian” issue 14th of July an article written by Gordon Campbell, the political CGT debate is about fairness and efficiency. You got it? Every business can depreciate business assets. That has been taken away from landlord's businesses. Landlords don’t get paid for house improvements and on tenant’s refusal a landlord can’t even pass on expenses above the market rent, why then would an investor pay for something with zero return?

As illustrated the removal of cash-flow for “mum & dad” investors has got consequences. Who will buy and own the next rental property for renters who want to rent as lifestyle decision or can’t afford buying a family home? I see it as another stroke to an industry already in deep trouble.

What do you think about?

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Klauster