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Olly Newland's article: "Is a capital gains tax looming closer?"

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  • Olly Newland's article: "Is a capital gains tax looming closer?"

    hi fellow members,

    I know I'm 4 months behind now, seeing that the article was published in April 2006. It's by a respectable property investory named Olly Newland. He's made several suggestions as to what we should be doing with properties, he's given warnings etc.
    It has casted some doubts in me as to whether or not to get into residential property investment.


    Particular points of interest:
    Extracted from:

    http://www.empowereducation.com/Olly_column_Apr06.bz


    Be Prepared:

    Whether or not a capital gains tax is ever introduced it is never too early to be prepared.

    To this end I would recommend:
    (1) Selling off poor quality property while the going is (relatively) good.
    (2) Reducing debt.
    (3) Deciding whether or not to hold on to your current investments for at least the next five years -- if not, get out of the market now.
    (4) Look at commercial property as a better alternative. The real returns are higher and with less emotion it runs on different rails from residential.
    (5) Don't believe the rubbish put out by the spruikers promising you instant wealth through residential property.
    (6) Put spare cash into solid banks and finance companies even if the rates being offered are lower.
    (7) Don't go into big-time developing at this point unless you're fully cashed up.
    ( Buy alternative investments which have international value e.g. art, antiques, gold, foreign cash accounts or blue chip shares as a natural hedge against any down turn or interference in the property market.
    (9) Get advice from truly impartial experts and be prepared to pay for it.
    James L
    Make a difference, live with PASSION!

  • #2
    Hi James,

    First things first, you need to be sure you know why you want to get into property investment. There will always be a variety of messages in the marketplace, some promoting property investment and others knocking it. If you are clear on why you want to get into property investment, you will be able to analyse those messages in light of your goals.

    Now, regarding the introduction of some form of capital gains tax. Apparently the RBNZ/Treasury were prohibited from considering a pure CGT. (I've looked at the Terms of Reference, and I can't find that prohibition in there.) Olly Newland takes "silence to be a form of communication", presumably implying that the governement would consider quickly introducing a CGT on the sly. But this is not the only way to understand the terms of reference. One can equally take the instruction to not consider a CGT to be a recognition that such a tax would not be politically expedient.

    Newland writes:

    One of the ideas is to bring in (or at least apply more harshly) a capital gains tax. I quote: "further measures can be employed to reinforce existing tax law applying to capital gains on housing. For example a reporting requirement could be imposed in respect of all sales of residential property occurring within (say) two years of acquisition..." (Sound familiar?)
    What Newland is talking about is NOT a CGT. The SSIR recommends that the IRD more stricly police existing income tax laws. In effect, this is a de facto CGT. But the important point is that the legislation required to more strictly enforce the existing tax on capital profits is already in place (with the exception of the proposed reporting/disclosure requirements). The govt. Could move very quickly to enforce these rules. So what are property investors (both existing and furture) to do?

    Olly says "make hay while the sun shines", that it is "never too early to be prepared". Can't argue with that. But he is not saying get out (or stay out) of the market altogether. (At least, I don't take him to be saying that.) All he is saying is that one should (a) keep, or purchase, good stock, (b) be sure of your medium and long term goals, and (c) diversify (mix up residential investment with cash, commodities, shares, commercial property). Again, can't argue with that - this sound advice surely applies at any stage of any cycle in any market.

    Olly Newland strikes me as somewhat of a doom merchant. (I guess this is another name for someone with a more conservative approach.) Others (those Newland warns about when he writes "Don't believe the rubbish put out by the spruikers promising you instant wealth through residential property") are hype merchants. I'd be closer to a doom merchant than a hype merchant myself, but I still think that residential investment property is good stuff.

    But don't forget, I've only just purchased my first IP, so apparently that makes my opinion close to worthless (according to one hype merchant).

    Paul.


    Comment


    • #3
      Hi James

      Be Prepared:
      Whether or not a capital gains tax is ever introduced it is never too early to be prepared. ....

      3) Deciding whether or not to hold on to your current investments for at least the next five years -- if not, get out of the market now.
      I did not see any logic in this statement - in preparing someone for the introduction of capital gains tax. How would I prepare myself by getting out of the property market.

      Capital gains tax does not mean that we should get out of property investing. Developers pay (capital gains tax) - minimized by other structures? But do they pull out of property market at all?

      So I wonder what the motivation is to this statement - to educate or to scare?

      Comment


      • #4
        For some reason, Olly's articles always annoy me. they are always too sensational and scare mongering.

        Comment


        • #5
          Originally posted by CJ View Post
          For some reason, Olly's articles always annoy me. they are always too sensational and scare mongering.
          I agree. He is becoming like a journalist. If you dont have anything interesting to say, invent something. Maybe he is trying to increase his profile because he is on TV now.
          But he does seem to contradict what others are saying.

          Comment


          • #6
            Not sure that if this is correct, but I've heard somewhere that NZ already has CGT, currently set at 0%...

            K

            Comment


            • #7
              Sounds about true.

              Only needs an act from Government to put a higher figure in there.
              "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

              Comment


              • #8
                I think what Olly is saying is that you should make sure you know why you are in the market, and what your goals are. He is a bit sensationalist about the bad times, but boy, he has lived them. His experiences on both ups and downs in the market has educated him far beyond most posters in this forum. However, like all people he is only human and learning from the past doesnt necessarily mean you can predict the future...
                Being prepared for changes in legislation is only wise and prudent. If you are highly geared you should ask what if... etc

                Tim

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