The Jacinda effect is taking hold of me. As a full time property investor, and long-time National supporter, I’ve never been so tempted to vote for Labour. The value of my property portfolio is sure to rise.
Capital gains tax has long been touted by Labour as the solution to rising house prices. Precisely the opposite is true. Capital gains tax will increase house prices rapidly.
Let me tell you why…
Capital gains are only realised when I sell a property. Solution: Don’t sell property. Just buy, buy, buy.
We only sell properties so we can buy different (usually better) ones. With the current banking environment, if I want to buy another property, I would need to stump up 40% deposit. I’ll usually draw that from the sale of another property.
Let’s assume, within the current tax regulations, I have a property worth $200,000 more than I paid for it, and I want to use that money as a deposit, to buy a different one. If I sell my existing property, I’ll have to pay about $20,000 in real estate fees, so can net $180,000 in my hand. That’ll be enough deposit to buy a $450,000 house. One sale, one purchase.
If capital gains tax was applied, I’d only net about $120,000 from the sale; leaving only enough deposit for a $300,000 purchase. In this scenario, I’m likely to be downgrading my property, for no benefit whatsoever. No sale, no purchase.
My best alternative, with capital gain tax, is to merely re-mortgage the existing property. I can draw down an additional $120,000 without a need to sell my existing property. While I can still only buy a cheaper, $300,000 property, it’s an addition, so I now have two properties. No sale, one purchase.
In case you missed it – That means capital gains tax will force me to own MORE property!
I’m not alone. Most property investors will do the same. Under Labour, we’re about to see a huge withdrawal of property vendors from the market, with no less demand from purchasers. Good luck first-home buyers.
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