New property tax affects market

Press, 11 March 1983, Page 4

New property tax affects market

A tax on urban investment property effective from April 1 has had some impact on the market but less than might have been expected. The provision, described by some as a “back-door capital gains tax”, was introduced in the 1982 budget and has since been the subject of Legislation. It requires that tax deducted for interest payments on land producing income be assessed for income tax at the time of the property’s sale, if that time is within 10 years of the purchase date. 1 A Christchurch real estate agent, Mr Kent Prier, predicted in the February issue of “Property” magazine that the next two months would bring “an erratic downward market as investors quit their properties to avoid the tax measures on interest payments.” Mr Prier said that it would be a good time to buy because owners wishing to sell before the cut-off date would consider “generous vendor finance”. Also, there would be a shortage of investment opportunities after April 1 when the 10-year

ownership provision became law. However, a real estate agent who specialises in investment property, Mr Jim Glass, said that the new tax had had, surprisingly little effect on the market. Some owners had panicked and were trying to sell before the end of the month but fewer than he had- expected, he said. Mr Glass said that the tax provision was poorly conceived. Under its terms, those who sold out nine years and 11 months after buying a property could face a tax bill of, for example, $50,000 whereas if they waited an extra month, they would not have to pay any tax. “This is the thing that is absolutely absurd. There should be a sliding scale,” he said. Another spokesman who did not want to be named said that the tax might have provoked a rash of sales except for the effect of the 10-year ownership provision. Those who had owned their properties for less than 10 years were opting to hold

on to them instead of selling to buy others ’ and being bound to a 10-year investment, he said.. The coming‘tax has persuaded some people to sell. , The chairman of the Tenants’ Protection Association, Mr Andrew Alston, said that the association had dealt with “quite a number” of cases lately of people being evicted as landlords tried to dodge the new tax. However, the president of the Landlords’ Association, Mr A. J. Roberts, said that while he would not quarrel with Mr Alston’s statement, he did not know of any members trying to “off-load” their flats for that reason. The president of the Canterbury branch of the Real Estate Institute, Mr Peter Cook, said that the new tax had had more impact on the commercial section of the investment market than on the residential. He did not think that more flats were being offered for sale than usual, but said that the number of commercial properties on the market had increased as April 1 approached.