Lower house prices from capital gains tax: REINZ

REINZ chief executive Bindi Norwell. Photo: supplied
REINZ chief executive Bindi Norwell. Photo: supplied

A capital gains tax would lead to lower house prices as property investors flee the market to avoid getting stung with the new tax, New Zealand's biggest real estate lobby group says.

But other property experts are not so sure, with one saying anyone who thought a capital gains tax (CGT) would be the grand elixir to get property prices down was "sadly mistaken''.

National is also sceptical the tax would result in much movement in the housing market.

On Thursday, the Tax Working Group recommended the Government adopt a capital gains tax which would come into effect in 2021.

Any capital gain on a property before that year would not be taxed.

The working group expected it to raise $8 billion over five years.

The Government will provide its response to the recommendation, among others made by the group, in April.

But the Real Estate Institute of New Zealand (REINZ) said a capital gains tax would have a "punitive impact on the investment sector''.

"I would expect more investors to leave the market because of this change because they just don't want to pay the CGT,'' REINZ chief executive Bindi Norwell said.

In turn, that would lead to a drop in house prices as it meant there would be more houses on the market.

"That means there [would be] more supply which may push prices down slightly.''

Ms Norwell said this would occur in the short term as investors left the market before the CGT came into effect in April 2021 - if the Government decided to make it law.

In fact, the Tax Working Group itself said its proposed capital gains tax would lead to "some small upward pressure on rents and downward pressure on house prices''.

According to the group's recommendation, land and investment properties would be subject to a CGT but the family home would be exempt.

Neither Inland Revenue nor Statistics New Zealand have data on the number of New Zealanders who own a second property, so it is hard to say exactly how many people would be affected.

But data from CoreLogic revealed 10% of the 85,000 residential properties which were sold last year - about 8500 homes - were sold to people who owned another property.

CoreLogic head of Research Nick Goodall said the extension of CGT for residential properties would further reduce the attractiveness of investing in property.

He said it would also likely cause a reduction in demand in the property market.

"However, as the tax will not be retrospective, we don't see it causing investors to hurriedly exit the market due simply to the proposed CGT changes,'' Mr Goodall said.

National finance spokeswoman Amy Adams said the number of homes that would actually be affected by a capital gains tax was not high enough to move the market.

NZ Property Investors' Federation executive officer Andrew King said it was difficult to say at this stage what impact a CGT could have on the property market.

But he said other in countries which did have such a tax, it had not had any effect on property prices.

"Anyone that thinks a capital gains tax would be the grand elixir to get property prices down is sadly mistaken.'' 

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