Curbing property investment is a Dominion Post reader’s solution to New Zealand’s current housing crisis. However, this solution demonstrates confusion between property speculators and property investors.
“Contrary to this writer’s opinion, property investors do not dominate the property market”, said Andrew King, Executive Officer of the NZ Property Investors’ Federation.” Home owners have a 2/3rds market share and dominate the market. Furthermore, a property speculator (or trader) is not the same as a property investor. A speculator buys a property with the aim of reselling it, while an investor buys a property with the aim of keeping it and renting it to a tenant.”
Mr King said that a capital gains tax will not curb property values rising through speculation.
“There is already a tax on property speculation. Inland Revenue has a unit that specifically targets property speculators and a speculator pays tax on the profit they make through buying and selling a property. So far Inland Revenue has been very successful in making sure those property speculators who owe tax actually pay it. On the other hand, property investors pay tax on the net income they make through rents.”
The writer also claims that property investors are able to finance their purchases with residential loans when these should be business loans.
Mr King points out that banks charge interest rates according to risk and return measures. A business loan is deemed to be riskier than a loan for a property purchase, therefore banks charge a higher interest rate.
“This is why many businesses use their homes as collateral for business loans, because they get a cheaper interest rate”, said Mr King. “In any case, applying higher interest costs to rental properties would have the unintended consequence of raising rental prices. This is surely not what anyone would want, much less those tenants keen to find an affordable rental property.”
NZPIF Media release distributed 25 November 2013