The dark cloud of Capital Gains Tax clears

New Zealand property owners are breathing a sigh of relief with the Government’s announcement that any form of Capital Gains Tax (CGT) is off the table. After significant discussion and numerous points of view, our MMP Government just couldn’t find a consensus.

What does this mean for the property market? The spectre of a CGT had scared many a property owner, from mum and dad investors, to lifestyle block owners, first home buyers with flatmates and of course small business owners.

The NZ Property Investors Federation believed around 270,000 landlords who own 464,000 residences could have been affected, which would also have pulled the estimated one million tenants in these properties into the whirlpool.

It was clear that rents were about to rise, which would have had a flow on effect to the first home buyer market, many of whom are renting and saving for their first deposit, which becomes just that much further away when paying more rent.

In the broader sense, the end of a potential CGT is likely to increase consumer and business confidence. The prospect of this tax change has been one of a number of policies in discussion that has weighed heavily on business outlook. In the business sector, a CGT would have reduced funds available for investment and job growth, while resulting in increased compliance and administration costs.

REINZ’s Bindi Norwell echoed the positive feelings of the property industry as feedback from both buyers and sellers to the organisation had expressed strong concerns about the tax. The first three months of this year’s real estate market has been operating under the cloud of a potential CGT, so the decision not to move ahead will in the short term bring more certainty for the real estate industry, and in the longer term, get things back to business as usual.

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