It’s been a favourite topic in the media, but what effect would a universal capital gains tax have on property prices? Graham explores.
First things first, let’s clear up that capital gains does exist on rental properties: if you buy and sell within two years you will pay tax on any gain on your rental property.
The question is, what would it mean if this same tax was also applied to owner-occupied properties? If it were implemented, will it stop the crazy increases in house prices that New Zealand has experienced?
Short answer … I don't know.
There is no evidence from overseas markets that it seems to stop housing inflation. In regard to capital gains on rentals, this is easy to overcome by just buying an additional rental that you effectively put aside as one to sell to pay your tax bill.
The real question for me is how our children will buy property. I think that family assistance for property will become more and more important. First home buyers in Wellington city are certainly paying $700k and up. In five years’ time who knows what they will be paying but I certainly know my kids will be talking to me for some kind of help. Maybe I’ll just them to the opposition as it will be in the very hard basket!
Graham Goodisson is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.