Ring Fencing Matters

[artemis]

Wonder if they have extrapolated the fiscal impact as rentals reach break even with a massive tax credit. Or how trust and company ownership structures will avoid the ringfencing by tax effective distributions. Or what the impact will be on rents when landlords have to reach even further into their own pockets every week.

Little unveiled the latest plank in Labour's housing policy at the party's election year Congress in Wellington today.

He said Labour will:

• Ring-fence losses on rental properties so they can no longer be used for tax breaks on other income. It will mean losses can only be applied to income from housing.

• Use the estimated $150 million in increased taxes for $2000 grants toward insulation and heating.

• Negative gearing will be phased out over five years.

http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=11855870

[eri]

• Ring-fence losses on rental properties so they can no longer be used for tax breaks on other income.
It will mean losses can only be applied to income from housing.

He said both the International Monetary Fund and the Reserve Bank had recommended removing the tax breaks.

so don't be surprised if it looks to become a major election issue

and national promise to do same

[P.Bateman]

Would make regional property a lot more attractive was Auckland

[Don't believe the Hype]

This could do a number of things:

1 - drive rent increases over the 5 year phase out period to negate the tax impact - as this tax impact will impact almost all investors in the market (I.e yields in any given suburb are similar) landlords will be able to lift rents with the confidence of knowing their 'competitors' i.e. Other landlords will be wanting to do the same thing. If CGT benefit is greatest at the top tax rate and the target of these reforms then the impact of removal could be around 30% increase in rents over 5 years. This increase will. It just happen in areas where houses are negatively geared... any positive geared property will then be able to hike rents too making them even more profitable from cashflow Point of View OR drive prices of these properties up as point 2 below happens

2 - encourage investors to balance portfolios between negative and positive cashflow properties by balancing out their central city negative geared property with cash flow properties. This could drive demand for high yield properties driving up prices and down yields.

3 - Drive some investors out of the market reducing the supply of rental properties which would put further upward pressure on rents.

[Viking]

Ok so what does a property investor do when that's all they do.i.e. no other income except perhaps super?
Will we go back to collecting cash rents?

The man's a greedy slimy fool.

And as my son found out to his cost. Not to be trusted.

[Anthonyacat]

Ok so what does a property investor do when that's all they do.i.e. no other income except perhaps super?
Will we go back to collecting cash rents?

The man's a greedy slimy fool.

And as my son found out to his cost. Not to be trusted.

An investor with no other income (or just super) shouldn't be negatively geared at all, let alone significantly - that'd be awful dangerous!

Fact is with 60% LVRs it's hard enough to be negatively geared these days anyway. (EDIT: Though I guess that might change with some increasing interest rates in the next few years...)

[Peter Griffin]

Are there any countries in the 'Western' world that have eliminated 'ring fencing' tax losses and if there are... what are their residential rental property markets like?

[Bob Kane]

Can a wise person explain what would happen if ring-fencing of negative gear properties was introduced?
I can't see it increasing the supply of new houses.
Would it cause house prices to drop? I have some doubts about that.
Would it push rents up? This seems more likely.
Is it aimed at discouraging long term investors or the quick-flick developers?
I'm hoping Tony Alexander will give his thoughts in his next newsletter.

[Perry]

It's just "vote buying" by a desperate shadow of a party, destitute of any realistic and/or practical ideas.

Look at the language. Why is offsetting income from one part of a taxable enterprise a tax "break?"

As for rents going up - it's been said before. "The market" decides, not the costs of the business.

When the scarlet party threw their lot in with the watermelon crowd, they probably put the last nail in their coffin.

Problem is: what's the alternative?

[Davo36]

Gosh, got to punish us greedy landlords living off the backs of the honest, hard working tenants.

But of course it will backfire.

Who will intentionally build apartments or houses for rent now? Will there be less people keen on buying houses/apartments to rent out?

But I guess Labour is going to build 100,000 houses right? This is the socialist mindset, the private sector can't do it, so we will. We can do it better and cheaper than the private sector...

Which is of course total BS.

BUT National have sat on their hands and watched this whole thing happen. So they have no one else to blame. They have watched foreigners come in and play in our housing market totally unfettered, they have watched the immigration soar to new levels and done nothing about it. They have also totally failed to reign in councils who have been stifling development in every way they can. Changes slowly coming in this area, but far too little too late.

And the public have had enough.

[PC]

Rents are going up, up, up.
Woohooo!

[flyernzl]

They have also totally failed to reign in councils who have been stifling development in every way they can.

The reality is that it is not just Councils. Its also the 'not in my back yard' crowd:

"Neighbours up in arms over five homes on single Auckland section"

http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11854629

[Anthonyacat]

Who will intentionally build apartments or houses for rent now?

What I want to know is who is unintentionally building apartments or houses. That's a skill right there.

[Anthonyacat]

Just read the article above. NIMBYs are a problem, but the developer has to have been joking when he said Five families will benefit from being able to walk their children to school, reducing pressure on the roads.

In what world could having five families where there was previously one will reduce pressure on the roads.

[Beginner1]

Rents going up.. yay.. Soon to quit my real job end of the year at 32 years of age and live off my rentals and other investments. I never bought any property which doesn't make money or potential to make money. Who wants to buys anything which doesn't make real money?

Go labour.. nah.. still not..

Rents are going up, up, up.
Woohooo!