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Research finds almost a third of Auckland houses changing hands within five years

Property
Research finds almost a third of Auckland houses changing hands within five years

Some 15% of the houses sold in Auckland last year had changed hands less than two years previously, according to research from property information, analytics and services provider CoreLogic.

The figures are significant in the light of the Government's decision to formalise the existing taxation of property gains by introducing a rule that any investment properties sold within two years will attract tax from October 1.

In an article on the CoreLogic website, senior research analyst Nick Goodall has investigated the house sales patterns both in Auckland and nationally.

The research indicated that had the new tax rules applied last year, about 3,400 house sales transactions nationally would have automatically attracted tax.

The research doesn't break down how many of those 3,400 might have been in Auckland, but it does show that Aucklanders have been keen to flick their houses on faster than people in other parts of New Zealand - perhaps not surprisingly given the heated state of the market in the country's largest city.

Goodall says there is "a definite difference" in hold period between Auckland and the rest of the country, with almost a third of Auckland houses held for less than five years after being sold.

"If we investigate further into this it’s quite clear there are signs of speculation in the Auckland market – when breaking the hold period into yearly buckets we see Auckland peak at less than 1 year while for the rest of the country it’s most likely properties are sold within 7-8 years.," he said 

"So the new measures from both the Reserve Bank and Government certainly seem like sensible approaches to try and address Auckland’s rapid growth, mostly driven by Investors."

Goodall says that of the 86,000 house sales nationally last year, almost 10% (8,400) were held for less than two years.

But in Auckland the percentage was much higher – almost 15% of 31,000 sales (so about 4,500).

Goodall says that some of these properties would  be the sellers’ main home so not liable for the tax.

He estimates about 60% of sales ("from our buyer classification data as well as Stats NZ Census owner occupier data") would be "main homes".

"So 40% of 8,400 sales nationwide give us a total of almost 3,400 properties that would be up for the tax," Goodall says. 

"Capital gain for those properties shifted in less than 2 years is $230m – taxed at an average rate of 30% is almost $70m per year," he says.

However, he says it also needs to be remembered that not all capital gain will be liable, as costs paid for renovations need to be taken into account "so this number would be scaled down further".

"This is because the renovations undertaken add to the capital of the property. For example if you bought an investment property for $500,000 and spent $50,000 renovating the bathroom and kitchen, then sold it a year later for $600,000 you’d only be liable for capital gains tax on the $50,000 profit.

"And finally, some people will already be obeying the current tax laws which would be included in this amount, so again this figure will be scaled down," Goodall says.

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5 Comments

The speculation ladder :)

Imagine the wonders NZ could do with the small percentage that should have been taxed to those speculators.

But instead we got a big nice bubble where every "smart investor" can get rich (as long as they get out before it bursts, of course) and a bunch of frustrated first home buyer wannabes. Hurry up before the next global financial crisis awakes us.

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The headline is misleading.

The research shows that of the 31,000 house sales in Auckland in 2014, just over 9,000 (or about a third) of those houses had sold previously within the last 5 years.

There are about 473,000 occupied dwellings in Auckland. The headline makes out that one third of these, or more than 150,000, will sell within 5 years. That's not what the research says.

A more accurate but less catchy headline would be something like "Research finds almost a third of Auckland houses that sold in 2014, changed hands previously within five years".

Beware of the potential to mislead with statistics and of the potential to mislead even more with a headline.

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It's worse than misleading - it's a blatant untruth. It should read "around 1.9% of Auckland houses changing hands within five years".

But then I wouldn't have bothered clicking through to the article because it's probably much the same proportion as houses in invercargill or Tokoroa that change hands within 5 years.

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Looks like a small difference to me; both nz and auck have 2 peaks, people reselling soonish 1-3 years, and those selling after 7-8 years. The resellers might be the traders who you'd expect to be more active in the auck market, whereas outside of auck might find it harder to sell after a quick reno so rent out while waiting for a buyer, so sell over 1-3 years, whereas auck flickers get it sold within weeks of reno.

Owner occupiers in all cities seem to like to hold for 7 or so years while their incomes/savings equity slowly grows to allow them to upgrade.

Traders would pay (and claim) GST on purchases which aids them from a cash flow point of view (and the declared profit helps them from a borrowing point of view...), some inexperienced would try to do the odd flick within 2 years without setting up a trading company (and hence be avoiding tax), although can definately see some snakey types might deliberately slip some flicks into a non-trading entity and offload without claiming/paying gst or paying income tax, the extent of this is unknown, but if borrowing and cash flow aren't an issue (i.e may have significant portfolio of holds already) then this strategy makes sense from a tax point of view, and they would be smart enough to rent out for a period first and make sure they tell (in writting) lenders/brokers they intend to hold to avoid the intent, before flicking.

So yes good move by Key, IRD + corelogic should be able to provide data on individuals selling within 2 years for large change in value without paying income tax, most likely IRD already been chasing these people and failing due to lame intent provision. So now they'll just hold for 2 years 1 day and use the same paper work as always to 'prove' no intent to resell. With auck yields though this holding can be costly.

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FHB friend of mine missed out on a tiny little place in Glendene two weeks back. asking price 530k. He offered 548k and it sold for low 550s.

Back on the market within a week of contracting with a "PBN" listing, which again sold on Friday for $589k. Other FHB mates have had the same experience.

The Auckland market has officially jumped the shark, and I think the end is near.

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