Bank, govt aim at demand, what about supply?

May 18, 2015

The Reserve Bank and the government are both trying to take the heat out of the Auckland housing market.

The Bank announced proposed changes to the loan-to-value ratio (LVR) policy to take effect from 1 Octobere:

They will:

  • Require residential property investors in the Auckland Council area using bank loans to have a deposit of at least 30 percent.
  • Increase the existing speed limit for high LVR borrowing outside of Auckland from 10 to 15 percent, to reflect the more subdued housing market conditions outside of Auckland.
  • Retain the existing 10 percent speed limit for loans to owner-occupiers in Auckland at LVRs of greater than 80 percent.

The government is  taking extra steps to bolster the tax rules on property transaction.

FInance Minister Bill English and Revenue Minister Todd McLay say the Government is taking extra steps to bolster the tax rules on property transactions – including those by overseas buyers – and to help Inland Revenue enforce them.

The tax measures are also expected to take some of the heat out of Auckland’s housing market and sit alongside the Reserve Bank’s latest moves to address associated financial stability issues, Mr English says.

“Taken together, they will help Inland Revenue enforce existing tax rules, provide it with extra resources and ensure that property investors pay their fair share of tax – whether they’re from New Zealand or overseas.”

The Budget this week will confirm that, from 1 October this year, the following will be required when any property is bought or sold:

  • All non-residents and New Zealanders buying and selling any property other than their main home must provide a New Zealand IRD number as part of the usual land transfer process with Land Information New Zealand.
  • In addition, all non-resident buyers and sellers must provide their tax identification number from their home country, along with current identification requirements such as a passport.
  • And to ensure that our full anti-money laundering rules apply to non-residents before they buy a property, non-residents must have a New Zealand bank account before they can get a New Zealand IRD number.
  • In addition, a new “bright line” test will be introduced for non-residents and New Zealanders buying residential property, to supplement Inland Revenue’s current “intentions” test. Under this new test, gains from residential property sold within two years of purchase will be taxed, unless the property is the seller’s main home, inherited from a deceased estate or transferred as part of a relationship property settlement.

“Tax rules are complex and affect people in different ways, so we will consult on these measures before they take effect on 1 October,” Mr English says.

The “bright line” test will then apply to properties bought on or after 1 October.

To further ensure overseas property buyers meet both existing tax requirements and those of the new test, the Government will investigate introducing a withholding tax for non-residents selling residential property.

Officials will consult on these details with a view to this withholding tax being introduced around the middle of 2016.

Mr English reiterated owner-occupiers of residential property will not be affected by the new measures when they sell their main home, or if property is inherited from a deceased estate or transferred as part of a relationship property settlement.

“It’s important to reiterate that these changes will not apply to New Zealanders’ main home, although existing tax rules will still apply in  addition to these new measures,” Mr English says.

“It’s equally important that people buying residential property for gains meet their tax obligations, whether they are from New Zealand or overseas.

“The combination of collecting IRD numbers and introducing this new bright-line test will help ensure that non-residents pay their fair share of tax in New Zealand.” . . .

New Zealand National Party's photo.

These measures should go someway to dampening the demand side of the pressure on Auckland property prices.

More needs to be done to increase the supply of houses.

This could be done by building more houses and by people moving from Auckland to other areas.

Immigration Minister Michael Woodhouse is considering incetivising immigrants to settle in the regions:

The Government is set to give skilled migrants, investors and those planning to bring businesses to New Zealand extra points if they settle outside of Auckland.

Skilled migrants and those applying to live in New Zealand under entrepreneur visas already gain 10 points in the immigration points system if they say they intend to settle outside of Auckland. That could soon get a boost.

“Those entrepreneurs, those innovators who could make a contribution to regional development, it is possible for us to bump up the points settings to incentivise that,” says Mr Woodhouse. . .

 It’s not just immigrants who could make a contribution to regional development.

If some of those bemoaning property prices in their home city opened their eyes to opportunities outside Auckland they could move out of Auckland.

They would get a house for much less than they could hope to pay in the city, find how much easier life is when there are fewer people clogging the roads and in improving their lives would free up houses in Auckland for those who can’t or won’t move.


If you can’t save 20% . . .

July 17, 2013

Suggestions that banks require deposits of at least 20% before lending for houses have been criticised for making purchases more difficult for first home buyers.

That might be so but does that make it wrong?

If people can’t save 20% of a purchase price, how will they go about covering their interest bills and repaying the capital?

Having less than 20% equity in your home doesn’t give you much security. If the market turns the lower your equity the greater the chance  you could end up owing more than you own.

It might also help people aim a little lower on the property ladder rather than trying to start several rungs above their budgets.

Saving a deposit takes discipline and focus.

Both of these are needed to maintain interest payments and reduce debt, is it such a bad thing to require a bit more of them of people before they buy?


And they say farms are expensive

October 31, 2012

We were splitting the partnership in a crib in Wanaka and looking for another one at the same time we were buying a couple of hundred hectares from a neighbouring farm at home.

When given the price of the section and working out the per hectare price compared with the farmland my farmer asked, “how many stock units could I run on it?”

Urban sections aren’t directly comparable with farms but Don Brash points out just how out of kilter city prices are:

For one of the least densely populated countries in the world, it is ridiculous that tiny 500 square metre sections often end up costing well in excess of $250,000 – equivalent to $5 million per hectare. Yes, there are costs of servicing these new sections with infrastructure – but $5 million per hectare?

Five million dollars could buy you about 600 hectares of reasonable farmland in the Manawatu on which you could run about 6,000 stock units.

People complain that farms are expensive. I wouldn’t say they’re cheap but they’re far more reasonably priced than the sections Dr Brash talks about.

That’s a lot of money poured into what is usually a non-productive asset, if not a liability.

A section, and the house built on it, generally cost money and earn nothing until, if the market is favourable, it’s sold when there might be some capital gain.

That contrasts poorly with farms which are – usually – productive assets that provide jobs and earn export income.


Historic home for sale

December 22, 2011

One of the beautiful historic homes in our neighbourhood is for sale.

Burnside Homestead was built in the mid 1980s 1890s by John Forrester Reid. It has been owned by only two other families since then. The Hudsons bought it from the Reids in 1930 and the current owners, Alison and Bruce Albiston bought it from them in 1974.

The Albistons have lovingly renovated the house, updating it with heating and extra bathrooms in sympathy with its Victorian origins and maintained the garden and parkland with the mature trees which surround it.

The house has at least nine bedrooms, four bathrooms and two en suites, separate servants quarters, a private bedroom with en suite upstairs, a billiard room, large commercial kitchen and scullery, dining room and the grand octagonal hall with a sprung floor.

The coach house near-by was recently converted to provide two more bedrooms with a kitchen and living area.

Most of the furniture in the house is original and includes a grand piano.

The Albistons have been running the homestead as a B&B  and hosting small conferences.

Burnside is only 15 minutes from Oamaru and only a few kilometres from the route the Alps to Ocean cycle way will take.

The property is listed on TradeMe for private sale.


Save The Cities

October 27, 2010

A group of concerned farmers has set up a lobby group called Save The Cities.

“If city folk want to Save The Farms, it’s the least we can do to reciprocate and Save The Cities,” group spokesperson Fairly Emotional said.

“Overseas buyers are lining up from all countries to purchase our houses, apartments, office blocks, factories and other residential and business property.

“We believe the Government must take urgent steps to address overseas ownership of our homes and work places. The first step to place a moratorium on the sale of any sensitive residential or business property  to overseas ownership until there has been informed public debate and suitable protections incorporated into a review of the Overseas Investment Act 2005. New Zealand must retain ownership of our the homes, offices and workplaces of Aotearoa New Zealand.

“Overseas investment can bring positive economic benefits to New Zealand and there are a number of examples, equally there are examples where those benefits quickly move off-shore. Much of our prime residential and business property is now in overseas ownership. Can we afford to sit back and let this happen to our large cities and the communities they support?

“The culture of New Zealand is one of partnership with the land and the waters of Aotearoa. As partners we ask for the chance to be heard and the opportunity to best protect our properties for future generations.”

Ms Emotional said she hadn’t been in a city for some time but used to stay with urban relatives when she was a child.

“I have very fond memories of playing in quarter acre sections with my cousins but they tell me with in-fill housing and apartment developments there aren’t many of them left.

“Quarter acre sections are Kiwi icons like pavlova and jandals. We can’t have foreigners buying them and turning city folk into tenants in their own homes, even though many of them already are.”

Ms Emotional said she was aware that banning foreign buyers could precipitate a collapse in property prices.

“But that could be a good thing. It’s too difficult for young people to get a foot on the property ladder these days. If we limit the market the rungs will get lower and make it easier for people to become home owners.”

She said a fall in urban property prices would also help retiring farmers who’d had the price of their farms depressed by moves against foreign ownership but denied that was what was motivating the Save The Cities campaign.

“As New Zealanders we are proud of our place in the world. We have always batted above our weight on the international stage, be it on the sporting fields or in our role as an international citizen and the responsibilities that brings with it.

“We have a beautiful country and wonderful traditions which must never taken for granted. There will always be pressures economically, socially and culturally to make accommodations and that is the reality of a modern country. One of those traditions is property owning and the way that continues to support not only our country but the local communities which rely on the homes and businesses. We cannot let that be lost without questioning, why?”


Farm sales and property values drop

September 18, 2010

The volume of farm sales and prices paid dropped in the three months to August.

From a high of $4,650,000 in August 2008 the three month median price for dairying properties is down by a third to $3,100,000 in the latest REINZ Rural Market Report statistics released today.

Only 17 dairy farms were sold in the three months to August, one less than in the same period last year and significantly below the 67 transactions in the three months to August 2008. Just three dairy farms sold in August at an average price of $2,543,333, and the average price per hectare decreased to $31,598 from $36,435 in July. The average price per kilogram of milk solids has fallen further to $33 from $37 in July, $40 in June and $45 in May.

From a peak of $90,125 in August 2009, the average price per hectare of all types of farms has fallen to $29,739. The 192 farms sold in the three months to the end of August is an increase on the 183 in the same period last year, but less than the 516 transactions in the three months to August 2008.

The national median farm sale price eased up from $1,118,500 for the three months to July to $1,127,754 for the three months to August 2010. Well down on the median of $1,742,500 for the equivalent period in 2008, the latest August figure is fractionally above the median for all farms of $1,000,000 for the same three months in 2009. However with the low number of sales currently occurring, price fluctuations, both upwards and downwards, can be impacted by the range of prices of the mix of properties being sold.

On a regional basis the largest number of farm sales during the three months to August was 31 in Canterbury, 24 of them grazing properties, and 27 in Southland, 11 of them grazing properties.

During the past year median prices for farms have declined in eight out of the 14 districts. In the three months to August 2010 compared with the corresponding period in 2009, farm sale prices were down in Waikato from $1,663,655 to $1,187,500, Bay of Plenty from $1,000,000 to $920,000, Hawkes Bay from $1,800,000 to $945,000, Manawatu/Wanganui from $1,275,000 to $1,200,000, Wellington from $3,005,000 to $1,935,000, Canterbury from $1,300,000 to $1,200,000, Otago from $937,500 to $712,000, and Southland from $1,200,000 to $1,125,000.

There was another decrease in the number of sales of lifestyle properties from 1088 at the end of July to 1066 in the three months to the end of August, and the national median selling price eased from $447,500 at the end of July to $436,750 last month. While the August 2010 median is still up on $430,000 for the same three month period in 2009 it is below the August 2008 median of $450,000.

The decline in sales and prices is due to both the recession and the boom which preceded it.

Farm prices for all properties soared on the back of increasing dairy prices until it was cheaper to buy an existing dairy farm than to purchase sheep or cropping land and convert it.

There used to be a rule of thumb that you should never pay more than three to five times the value of a property’s gross income when buying a farm. That was disregarded for not just dairy properties but sheep and beef ones with much less earning potential.

The value of a property is most important when you’re buying or selling or if it’s highly mortgaged.

Lower prices may make it easier for people to get in to farming or increase their land holding, although credit is still pretty tight. But they will also be causing older farmers to re-think their retirement plans and they will be having a detrimental impact on equity of those with mortgages.

That won’t matter if the people can cover interest payments and ride out the current downturn. But it will put pressure on people who were struggling before prices dropped.

However, banks will be mindful that there’s no point pushing for sales when prices are dropping.

The protracted process of the sale of the Crafar properties won’t be helping farm sales and that’s when it’s possible for overseas investors to own farms.

The volume of sales and property prices would drop even more if farm ownership was restricted to New Zealanders.


The right to go to court

June 15, 2010

The debacle over the foreshore and seabed started over a very simple issue – Maori wanted the right to go to court.

They’ve got that now with the repeal of the Foreshore and Seabed Act.

Private property rights will still apply to private property, public access is still preserved on public land.

That all sounds fair and reasonable to me.


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