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Here is an email I have sent to Hybrids entire email database today. All feedback welcome.
The RBNZ today released at 11 a.m. its report into how the government may be able to minimise cyclical house price growth rates because of the perception that house price growth is damaging to NZ's economy.
I have taken the opportunity to read the report and have briefly summarised my initial thoughts for you below.
The likelihood of any of these options being implemented is relatively slim. We may see some variation of them in due course but I'm sure there will be much heated debate to come on these topics yet.
I suggest 'Regulation and Stability mix like Nitro and Glycerine' as the RBNZ's investigated changes will only create economic volatility in the short term and may well cause chaos initially. But it will not stop residential property from remaining cyclical and seeing strong value increases during the boom phase of future cycles.
The report examines 6 main options that were explored by the RBNZ as follows with my brief insights in italics:
1. Capital Gains Tax: Already exists but they are calling for increased publicity and enforcement measures. They have disturbingly suggested imposing CGT even on owner-occupied dwellings if sold within say 2 years!
As CGT already exists there is no real potential impact for property investors.
2. Ring-fencing: This means NOT allowing any property tax loss to be offset against other non-property related income! This option is not favoured by RBNZ as little evidence exists of any impact on values in the countries where this is already in force. Impact would be devastating for negatively geared investors but create buying opportunity plus for positively geared investors.
3. Improve housing supply responsiveness: This means being prepared for increases in demand for housing by being able to quickly supply properties to fill that need. The Dept of Building and Housing is already considering how to achieve this. Little potential impact in already established suburbs. May reduce value growth in any 'new' suburbs.
4. Linking Bank Capital to Risk: The RBNZ is already implementing a new capital adequacy regime for registered trading banks but this mainly impacts on the banks ability to financially weather any downturn. It could result in banks being more conservative in their lending policies though this is highly unlikely and not considered of much consequence to property investors.
5. Discretionary Loan to Value Ratio (LVR) Limit: This would mean imposing a maximum LVR on all loans secured by residential property. RBNZ acknowledges this is poorly targeted and hard to enforce. Would impact severely on highly leveraged investors only and would create much buying opportunity for investors with low borrowing levels.
6. Discretionary Mortgage Interest Levy: A levy imposed on all residential property loans of up to 2%p.a. RBNZ imply this levy could be imposed at times when house price inflation is too strong to curb house price inflation. Would cause even more volatility on value rises because of the proposed stop-start nature of imposing the levy at times when the RBNZ or government consider necessary. Would worsen the 'affordability' factor as people would still buy in a boom knowing the 'levy' would be reduced/removed once the boom was over. Would cause financial hardship for 'mums and dads' purely because their house value has increased! It also appears to be just another way to generate revenue for the government!
As identified in my book "Grow Rich with the Property Cycle these possible legislative amendments are all what I refer to as "Market Influencers" and would only have a temporary impact on the property cycle.
If anything these amendments will increase volatility rather than cause stabilisation. If you have read my book you will know that Market Influencers can be the property investors best friend as they bring opportunity for investors seeking to be countercyclical.
SO WHAT SHOULD YOU DO NOW?
DON'T PANIC! There is little cause for alarm and just the suggestions made may well create some great buying opportunities. Stay focused on your long term goals and continue to be financially responsible so you can weather any potential changes that may arise.
It appears the RBNZ think that regulation of a free market (where supply and demand determine an assets value) causes stability...
I wonder when will they learn that is often not the case?
The RBNZ today released at 11 a.m. its report into how the government may be able to minimise cyclical house price growth rates because of the perception that house price growth is damaging to NZ's economy.
I have taken the opportunity to read the report and have briefly summarised my initial thoughts for you below.
The likelihood of any of these options being implemented is relatively slim. We may see some variation of them in due course but I'm sure there will be much heated debate to come on these topics yet.
I suggest 'Regulation and Stability mix like Nitro and Glycerine' as the RBNZ's investigated changes will only create economic volatility in the short term and may well cause chaos initially. But it will not stop residential property from remaining cyclical and seeing strong value increases during the boom phase of future cycles.
The report examines 6 main options that were explored by the RBNZ as follows with my brief insights in italics:
1. Capital Gains Tax: Already exists but they are calling for increased publicity and enforcement measures. They have disturbingly suggested imposing CGT even on owner-occupied dwellings if sold within say 2 years!
As CGT already exists there is no real potential impact for property investors.
2. Ring-fencing: This means NOT allowing any property tax loss to be offset against other non-property related income! This option is not favoured by RBNZ as little evidence exists of any impact on values in the countries where this is already in force. Impact would be devastating for negatively geared investors but create buying opportunity plus for positively geared investors.
3. Improve housing supply responsiveness: This means being prepared for increases in demand for housing by being able to quickly supply properties to fill that need. The Dept of Building and Housing is already considering how to achieve this. Little potential impact in already established suburbs. May reduce value growth in any 'new' suburbs.
4. Linking Bank Capital to Risk: The RBNZ is already implementing a new capital adequacy regime for registered trading banks but this mainly impacts on the banks ability to financially weather any downturn. It could result in banks being more conservative in their lending policies though this is highly unlikely and not considered of much consequence to property investors.
5. Discretionary Loan to Value Ratio (LVR) Limit: This would mean imposing a maximum LVR on all loans secured by residential property. RBNZ acknowledges this is poorly targeted and hard to enforce. Would impact severely on highly leveraged investors only and would create much buying opportunity for investors with low borrowing levels.
6. Discretionary Mortgage Interest Levy: A levy imposed on all residential property loans of up to 2%p.a. RBNZ imply this levy could be imposed at times when house price inflation is too strong to curb house price inflation. Would cause even more volatility on value rises because of the proposed stop-start nature of imposing the levy at times when the RBNZ or government consider necessary. Would worsen the 'affordability' factor as people would still buy in a boom knowing the 'levy' would be reduced/removed once the boom was over. Would cause financial hardship for 'mums and dads' purely because their house value has increased! It also appears to be just another way to generate revenue for the government!
As identified in my book "Grow Rich with the Property Cycle these possible legislative amendments are all what I refer to as "Market Influencers" and would only have a temporary impact on the property cycle.
If anything these amendments will increase volatility rather than cause stabilisation. If you have read my book you will know that Market Influencers can be the property investors best friend as they bring opportunity for investors seeking to be countercyclical.
SO WHAT SHOULD YOU DO NOW?
DON'T PANIC! There is little cause for alarm and just the suggestions made may well create some great buying opportunities. Stay focused on your long term goals and continue to be financially responsible so you can weather any potential changes that may arise.
It appears the RBNZ think that regulation of a free market (where supply and demand determine an assets value) causes stability...
I wonder when will they learn that is often not the case?
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