Is Capital Gains Tax the Key to Funding NZ's Aging Population?

Topic #1: Interest.co.nz 20th of November-Independent global economic researchers Capital Economics say despite their expectation the RBNZ will slash the OCR to just 2.25% in 2025 the housing market price recovery will be 'muted'

Topic #2: The Mortgage Mag 19th of November -Mortgages harder to get over the line

Topic #3: NZ Herald 19th of November -Landlord paid $4k after $40k of damage, goes to Tenancy Tribunal

Topic #4: Stuff 21st of November - Investors on the rebound and first home buyers still strong in sluggish market

Topic #5: RNZ 21st of November -Capital gains tax the best way to raise revenue as NZ 's population ages - Treasury

Click to book a free, no-obligation meeting with Paul

Click to join a free Online or In-Person How to Succeed with Property Investing Event

Chapters

• 1:17 Interest.co.nz 20th of November-Independent global economic researchers Capital Economics say despite their expectation the RBNZ will slash the OCR to just 2.25% in 2025 the housing market price recovery will be 'muted'
• 4:12 The Mortgage Mag 19th of November -Mortgages harder to get over the line
• 8:26 Topic #3: NZ Herald 19th of November -Landlord paid $4k after $40k of damage, goes to Tenancy Tribunal
• 11:05 Topic #4: Stuff 21st of November - Investors on the rebound and first home buyers still strong in sluggish market
• 14:08 Capital gains tax the best way to raise revenue as NZ 's population ages - Treasury

Transcript

 Hi everyone. I'm Debbie Roberts, owner and financial adviser at Property Apprentice. Join us today for the week in review, where I talk about current events for the everyday investor and home buyer. Our topics for this week, topic number one, from Interest.co.nz on the   📍 20th of November. Independent global economic researchers, capital Economics, say, despite their expectation, the Reserve Bank of New Zealand will slash the OCR to just 2.25% in 2025.

 The housing market price recovery will be muted.   📍 Topic number two from the Mortgage Mag on the 19th of November, mortgages harder to get over the line.   Topic number three from the   📍 New Zealand Herald on the 19th of November, landlord paid $4,000 after $40, 000 worth of damage goes to tenancy tribunal.  Topic number four from   📍 Stuff on the 21st of November, investors on the rebound and first home buyers still strong in the sluggish market.

 Topic number five from   📍 RNZ on the 21st of November, Capital Gains Tax, the best way to raise revenue as New Zealand's population ages,  Treasury. So all of the links to these articles are in the show notes below.  

Marker

 Topic number one from Interest in Finance.  On the 20th of November, independent global economic researchers, Capital Economics, say despite their expectation the Reserve Bank of New Zealand will slash the OCR to just 2.

25 percent in 2025, the housing market price recovery will be muted.  Independent researchers at Capital Economics forecast that New Zealand house prices will rise by about 4 percent in 2025 and 6 percent in 2026, signalling a restrained market recovery. Marcel Thieliant, CE,  That's Capital Economics, head of Asia Pacific, attributed this muted outlook to stretched affordability despite expectations that the Reserve Bank in New Zealand, the RBNZ, will reduce the official cash rate, the OCR, from 4.

75  percent to 2. 25 percent by 2025.  Thieliant explained that while the anticipated rate cuts are the steepest since the global financial crisis, mortgage payments relative to household incomes are at record highs for the start of the rate cutting cycle, limiting the potential for a significant rebound. 

New Zealand house prices soared nearly 50 percent between late 2019 and their 2021 peak, but have since fallen by about 20%, following OCR hikes to 5. 5%.  Since early 2023, prices have remained flat, with modest rebounds in home sales and a decline in mortgage rates by over one percentage point. Thieliant suggested that further OCR reductions could significantly improve affordability, though systemic constraints remain.

Thieliant pointed to declining net migration as another hurdle, with levels now below pre pandemic norms. Stricter immigration policies and a higher unemployment rate compared to Australia are expected to keep population growth subdued.  He acknowledged government policy changes that have made rental property investments more appealing, but noted that investors only represent 20 percent of purchases, and any demand boost from these changes has likely already occurred. 

Thieliant suggested that prolonged flat house prices could improve valuations over time. Rising disposable incomes, projected to grow by 4. 5 percent annually, combined with falling interest rates, could bring house price to income ratios back to 2019 levels by late 2026.  If housing prices remain steady,  affordability could return to its long run average within the same time frame.

While these trends may support gradual market improvement, Thieliant emphasised that affordability challenges and muted population growth will continue to limit the pace of the recovery. 

Marker

Topic number two from the Mortgage Mag on the 19th of November, mortgages harder to get over the line.  A recent survey by economist Tony Alexander highlights growing frustration among mortgage advisers due to extended loan processing times.

Most banks now take at least 10 working days to assess applications, negating some easing of lending criteria.  The proportion of advisers reporting increased bank willingness to lend has dropped sharply down to 17%. That's down from 34 percent in October and 57 percent in September. Many advisers cite ballooning processing times as the main cause.

Buyers frequently need to request up to 15 working days for finance approval, yet securing a deal remains challenging. Advisers have expressed concerns about banks prioritising direct customers over adviser submitted applications, with some noting that clients receive quicker approvals when bypassing the adviser channel. 

First home buyers, FHBs, without a 20 percent deposit face additional hurdles as banks increasingly prioritize existing customers and live deals such as signed sale and purchase agreements.  Some delays stem from banks reduced test rates leading to higher loan demand. ASB, for example, temporarily paused new pre approvals to clear a backlog caused by increased interest from first home buyers, investors, and refinancers.

Advisers criticised such measures, citing instances where direct applications were approved faster than those submitted through advisers. The Commerce Commission's recommendation that advisers present clients with three loan quotes has also added strain.  While intended to encourage competition, advisers argue this approach bogs down the system, as each quote requires a full credit assessment, further slowing turnaround times.

Despite frustrations, market activity is rising. Around 55 percent of advisers report increased interest from first home buyers, and it's the highest level that we've seen since October 2023.  Falling interest rates appear to be driving optimism, with buyers expecting stronger housing activity. Investor demand surged, with a recent 60 percent of advisers noting increased activity.

Lower interest rates are offsetting concerns about rental returns, rising unemployment and migration losses, making it easier for investors to purchase properties. Debt-to-income ratios, or DTI ratios, remain a challenge for investors, but lower test rates and reducing rental shading requirements, down to approximately 20%, are providing relief. 

The majority of borrowers, 88%, are opting for fixed rate mortgages, typically for 6 to 12 months, while 11 percent are choosing floating rates. This trend reflects anticipation of further official cash rate cuts in the near future, with widespread   expectations of a 0. 5 reduction on the 27th of November this month. 

While falling interest rates are boosting market activity, slow processing times and increased administrative burdens are creating significant headaches for mortgage advisers and buyers.  Advisers emphasize need for streamlined bank processes to better serve the growing demand for housing finance.  If you'd like to learn more about investing in property,   📍  📍  📍 join me at one of our free events called How to Succeed with Property Investing. I'll discuss strategies for successful investing from my perspective as a financial adviser and experienced property investor, and these events are available live, online or in person.

Check out propertyapprentice. co. nz for upcoming dates and register today. We don't sell property, so it's all about increasing your knowledge to reduce your risk.  If you've already been to one of our free events   📍  📍  📍 and you'd like to find out more about how we can help you to reach your financial goals, you can also book a no obligation phone call or meeting with my husband Paul Roberts via the website. 

 Topic number three from the New Zealand Herald on 19th of November, landlord paid $4,000 after $40, 000 worth of damage goes to tenancy tribunal. A tenant who caused $40, 000 worth of damage to a rental property has been ordered by the tenancy tribunal to pay $4,085 in compensation to the landlord. The tenancy which ended in July was terminated by the tribunal due to continued and excessive damage to the home. 

The landlord sought compensation in a bond refund, citing extensive damage across the property.  Repair costs included 11 separate insurance excess charges of $750 each, covering intentional and careless damage in multiple rooms. The tribunal clarified that landlords must prove tenants caused damage intentionally or carelessly to claim repair costs. 

Evidence presented included photographs showing large holes in walls, broken windows, a tampered alarm system, damaged bathroom fixtures, broken doors, wrenched cupboards, and ruined carpets. The adjudicator noted the home was newly renovated at the start of the tenancy and stated the tenant was fortunate the insurance covered intentional damage.

The tenant was held liable for the insurance excess. The tenant had already paid $3, 780 with the remaining $4, 085 calculated after the bond refund. Sarina Gibbon, General Manager of the Auckland Property Investors Association, Highlighted the financial challenges caused by insurers charging separate excess fees for each instance of damage. 

She explained that under the Residential Tenancies Act, the RTA, tenants liability for careless damage is capped at the lower of the insurance excess or four weeks rent. However, the definition of a damage event varies between insurers. Affecting claims and financial outcomes for landlords and tenants.

Gibbon advised landlords to understand how their insurance policy defines a damage event, as this determines how multiple damages in the same area are assessed. For careless damage covered by insurance, liability is limited to the lower of four weeks rent or the insurance excess. If not covered by insurance, liability is capped at four weeks rent. 

My advice is make sure you've got good insurance cover. Talk to an independent insurance adviser to make sure that you've got the best protection for your rental properties.  

Marker

 Topic number four from staff on the 21st of November. Investors on the rebound and first home buyers still strong in a sluggish market. 

New Zealand's property market presents a mixed picture, as declining prices and rising sales fail to translate into a robust economy. According to CoreLogic's November housing chart pack, property sales in October increased by 16 percent year-on-year, with Marking the 17th rise in the past 18 months.

However, sales volumes remain 10 to 15 percent below typical seasonal levels, reflecting cautious buyer behavior amidst ongoing affordability challenges.  Chief Property Economist Calvin Davidson noted that ample listings have given buyers more options, encouraging deliberate decision making and better deals.

Despite this, the CoreLogic Home Value Index recorded an 18 percent decline in national property values from their post COVID peak after eight consecutive months of decreases.  In the four weeks ending November 3, new listings reached 11, 549, up from 10, 611 during the same period last year.

Overall market listings totaled 28, 954, exceeding both last year's 25, 850 and the five year average of 23, 032. Regions like Wellington, Auckland and Otago saw listing increases exceeding 15%, although the West Coast bucked this trend with lower availability.  First home buyers accounted for nearly 28 percent of October purchases, driven by reduced prices and reduced competition.

Mortgaged investors also gained ground, making up 23 percent of sales due to easing loan to value ratio restrictions and falling mortgage rates. Davidson highlighted the importance of both groups in maintaining a presence in the market as their combined activity supports overall stability. 

Although annual inflation has returned to the Reserve Bank's 1 to 3 percent target range, broader economic activity remains subdued. High loan-to-value ratio requirements, emerging debt-to-income limits, and tighter credit conditions continue to constrain buyers. Davidson emphasised that while falling mortgage rates may stabilise prices, a strong housing rebound is unlikely in the near term. 

Affordability challenges, elevated inventory and signs of job losses are expected to weigh on the market's outlook. Approximately 66 percent of existing mortgages are set to reprice within the next year, which means that mortgages are coming off fixed rates and looking at refixing. So this could add further financial pressure, although to be fair, in most cases they'll be reducing the interest rates that they refix at. 

Marker

 Topic number five from RNZ on the 21st of November, capital gains tax the best way to raise revenue as New Zealand's population ages, according to Treasury.  A capital gains tax is the most viable tax reform to significantly increase revenue Treasury has advised the government. This comes amid the Discussions by Treasury and Inland Revenue about overhauling New Zealand's tax system to address long-term fiscal challenges.

New Zealand's ageing population is projected to reduce the number of working age taxpayers relative to retirees. 

This demographic shift may necessitate relying less on income taxes and more on alternative revenue sources. In a June report provided under the Official Information Act, Treasury noted that broadening the tax base, particularly through capital gains tax, was the most effective way to generate meaningful review.

Other measures would likely produce only modest gains. Economist Shamubeel Eaqub supported Treasury's position emphasising that New Zealand already relies heavily on GST, corporate tax and income tax. Raising corporate taxes, he said, could hurt international competitiveness, while income taxes are already relatively high.

He explained that taxing capital is a logical next step, as it's an untapped area of the tax system. Eaqub argued that this is widely acknowledged amongst economists.  Eaqub highlighted that while the current system places much of the tax burden on the working population, this structure is unsustainable given the country's ageing demographics. 

Treasury's research showed that individuals typically contribute more in taxes during their working years, but receive more in benefits and services when young or retired. He stressed the need for a long-term plan, warning that a shrinking base of net taxpayers would challenge the sustainability of the current system. 

My opinion on this is that the devil will be in the detail.  If they're going to do a capital gains tax, in my opinion,  that people don't mind capital gains tax as long as it doesn't affect them. So property investors might become the target for this sort of tax as, you know, if it doesn't affect your family home, then most people won't be affected by it.

However, having said that, if you're a property investor and you're in it for the long-term, also won't affect you until you sell that property.  Learning is key to success when investing in property and the right knowledge can make all the difference.   📍  📍  📍 Register now for one of our free events called How to Succeed with Property Investing.

These events are available both online and in person. Whether you're a seasoned investor or just starting out, our free sessions will provide you with the essential tools and insights to make smarter, more informed decisions. Don't miss this opportunity to stay ahead of the curve and take the next step towards achieving your financial goals.

And our free events will also tell you more about how we can help our clients achieve their investing goals. If you're interested in finding out more about what we do, visit www.Propertyapprentice. co. nz today and sign up.  Or feel free to   📍  📍  📍 book a no obligation phone call or meeting with my husband Paul Roberts through our website.

That's www.Propertyapprentice. co. nz.  Thanks for listening.