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By Olly Newland

NZ Prime Minister John Key made a fundamental blunder when he recently delivered to Parliament his views – the government’s views – of the proposals from the Tax Working Group.

Quite rightly he booted out the looney leftist ideas of land tax and capital gains tax (typical notions that arise from those whose lives are filled with envy whenever they see people other than themselves doing well).

However he caved in on one recommendation and gave a clear signal that the treatment of depreciation on investment property would be attacked in the Ministers of Finance’s Budget due out in May.

What the new measures would be was not made clear. No details were given, so the public has been left guessing about the imminent new measures.

Neither, it seems, has anyone considered what the flow-on effects may be and what unintended consequences may eventuate.

Even more disappointingly, by innuendo the Prime Minister appeared to go along with the suggestion that property investors act as some kind of free-loading extortionists ripping of the system while swimming up to their armpits in ill-gotten gains.

It appears that he chose to be ‘the populist’ – swayed by the ignorant masses who bay for blood, revel in public hangings, while cutting everyone down to size at the first opportunity.

The government as a whole has stumbled badly this time, which is hard to understand given that the Prime Minister and the Minister of Finance, Bill English, both have a good background in finance. Surely their collective wisdom would have taught them one thing:

Uncertainty creates unease and unease creates distortions.

Initially I believed that the proposed changes to depreciation would do little harm. On further research and discussions with others, the ramifications and problems became clear and I am now of the opinion that any major changes would indeed be harmful.

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Recovery in the housing market remained soft in February with house sale volumes at their lowest since at least 1992, figures released by REINZ today show. The average number of days to sell a property rose to 46 days in February from 43 days in January and the median house price was unchanged at NZ$350,000. (Update 1 includes comments and implications from ASB Economist).

There were 5,029 sales in February, up from 3,666 in January, but was down from 5,228 a year ago and was the lowest February sales total since the REINZ started publishing figures in 1992.

The Residential Section Price Index fell 11.3% in February from January and was down 3.4% from a year ago, REINZ said.

Real Estate Institute of New Zealand President Peter McDonald said agents reported an air of caution amongst buyers, most of whom were genuine home seekers as opposed to investors.

“Recent Government discussions of potential tax changes have halted the number of inquiries from investors who usually buy at the lower end of the price range. Most interest at present is in the $400,000 to $600,000 bracket and no change in interest rates is keeping the genuine home buyers in the market,” McDonald said.

See the full REINZ news releases here:
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I wrote a piece for my Herald on Sunday column that is also available at NZHerald.co.nz here. I received a bunch of emails in response so I thought it would be useful to publish those here and see what people think.

I get nervous whenever I hear ministers of the Crown talk about “ginormous” financial problems that are “elephants in the room” that they want to use taxpayer money to fix. I worry we are about to be presented with a fait accompli where many taxpayers pay huge amounts to a few other taxpayers for a long time.

I’m talking of course about the leaky building crisis and the moves afoot by the National-led Government to help fund some sort of bailout in tandem with local governments in Auckland in particular.

The scale of the problem is only just dawning on policymakers and the shock of the likely cost has yet to really register with the public. Yet decisions are being taken behind closed doors without public discussion.

Last weekend Building and Construction Minister Maurice Williamson lifted the veil somewhat on a monster of a problem that deserves wider debate. He was reported as saying he was sitting there with his head in his hands wondering how to deal with the “ginormous” problem at a time when the Government is already forecasting deficits for years to come.

He described the problem as the “elephant in the room” in budget discussions. An expert panel has estimated 89,000 homes could fail at a cost of up to $23 billion. This panel estimated 90 per cent of all apartments, townhouses and units built between 1992 and 2005 could leak badly in the next 15 years.

Astonishingly, Prime Minister John Key has already talked about the Government “guaranteeing access to funds” for leaky homeowners to borrow to pay to repair their homes and not have to pay interest or repay those funds until they die.

Even more astonishingly, Key believed the effects of inflation on property values would help solve the eventual problem of having to pay back this debt. He effectively suggested this would be a painless solution for the taxpayers at large.

Nothing could be further from the truth. The Government is already borrowing $240 million a week to fund its current budget deficits. New Zealand’s net foreign debt is likely to top 110 per cent of GDP by 2014.

This puts us in the same basket as Greece, Spain and Portugal, all of whom have lost the confidence of international investors and face massive spending cutbacks and depressions.

New Zealand’s foreign debt situation is being ignored because most of it is being held by Australian banks, who are effectively underwritten by the Chinese-backed Australian economy.

We are seen as a suburb of Australia, which is seen as a province of China. That’s fine, until international investors look behind our veil to find our leaky buildings, slow growth and hollowed-out workforce.

Meanwhile, the last thing we should be doing is adding more mountains of debt for future generations to pay off while paying the health care and pension costs of the baby boomers.

Yet that is what John Key and Maurice Williamson are talking about with their guaranteed funding plan for leaky building owners.

Are New Zealand’s taxpayers in Invercargill, Westport and Kaitaia prepared to pay for the owners of mock Mediterranean mansions in Herne Bay, St Heliers and Takapuna to reclad and rebuild their townhouses?

Is it fair those who bought these leaky buildings after 2002 when the issues became known should be bailed out too? Why shouldn’t those who made capital gains from 2002 to 2007 use those gains to pay for the recladding?

Is New Zealand prepared to saddle its younger generations with unsustainable debt so home owners and investors in Auckland can retire with a safe nest egg, free health care and a bullet-proof pension over the next decade?

Your view? I welcome your comments below

QV, the government valuation agency, released their February indices today on residential property showing the rate of property value growth in urban areas has begun to slow, even more in rural residential areas where house values have actually decreased over the last 3 months.

QV said figures looking at a year on year change for February show a change of a 5.5% increase, but values in the last few months have flattened in many areas and values at a national level are 3.9% below the peak of the market in late 2007.

“The annual change in values across New Zealand has continued to increase from last month, but this is masking what has happened in the most recent months. In the main urban areas, values have grown since mid 2009, but that rate of growth has recently begun to slow. In the provincial areas, this growth has slowed even more, and across the rural residential areas house values decreased slightly over the last month,” Glenda Whitehead of QV Valuations said

The figures for the national average sales prices show an increase of $416,074 in February, up from $409, 807 in January, QV said.

The national average of sales prices is less reliable than the QV index as averages, they said, as it depends which part of the market is active.
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Seamus O'Sullivan

A website has been launched this month called homes2swap where owners list their home online and swap them with the difference being paid as a cash settlement.

Homes2swap Managing Director Seamus O’Sullivan said the website could save sellers up to $NZ 20,000 in relestate agents fees.

“There is a world wide trend — also in New Zealand — where there are more sellers on the market than there are buyers to buy them. There is probably over 1000 houses listed through private sale. There’s certainly a market where people are looking to sell their properties without real-estate agents,” said O’Sullivan, who is the former General Manager of the InterIslander and is also chairman of the Taupo Tourism Advisory board,

“Spending upwards of NZ$20,000 on real-estate agents is a fair chunk of their equity. A normal house of about NZ$400,000 will cost close to NZ20,000 to sell. It is standard that a real estate agent will charge a listing fee and marketing costs. You’re going to save fees of some where between NZ$15-20,000 on an average house,” he said.

Along with reduced selling fees, the website aims to grow the number of property transfers with same day transactions, avoiding losses through changes in the market between sales, O’Sullivan said.

“Because you’re dealing in the market at the identical time, the relative value of the two properties been swapped remains constant,” O’Sullivan told interest.co.nz.

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Auckland’s largest real estate agency group, Barfoot and Thompson, has reported sales volumes in February of 626, up 7.4 percent from January and up 12 percent from February a year ago. These are the first house sales figures reported for February and suggest a pickup in volume from a very weak January. (Update 1 includes chart).

Barfoot and Thompson’s average house price in February was NZ$521,323, up 3.2% from January and close to the average for 2009. Barfoot and Thompson Managing Director Peter Thompson said listing volumes surged to 1,714 in February, the highest in almost 2 years.

“Given the balanced state of the market sellers need to ensure their price right if they are to sell,” Thompson said.

See the release below:
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