Raine & Horne Kumeu - Hobsonville Blog

Capital Gains Tax a headache or a headline

Capital gains on investment properties have been top of mind for some investors since Labour announced its capital gains tax plan.

While many will argue over the merits  of the plan, it raises a fundamental issue regarding investment property – in order to tax capital gains there has to actually be capital gains to tax, and that’s something that can no longer be taken for granted.

Looking at the residential property market, capital losses more likely have been a feature of the market since Grant Robertson tinkered with the lending caveats. 

Residential property investors tend to buy properties at the cheaper end of the market because they usually provide better returns than more expensive properties. Most investors seek to gain a return in the 6 to 7% area.

To get an idea of the capital gains facing  investors, the good folk at interest.co.nz tracked the changes to the Real Estate Institute of New Zealand’s lower quartile selling price back to 2004.

In September this year, the REINZ’s lower quartile price was $590,000.

That’s the price point at which 75% of sales are above and 25% are below, so it’s a proxy for the most affordable, and for investors potentially the most lucrative, end of the market

A year earlier in September 2024 it was $594,000. So a property purchased for the lower quartile price in September last year and resold at the lower quartile price in September this year would have suffered a capital loss of $4000 (-0.7% of the original purchase price).

Going back two years to September 2023 the lower quartile price was $590,000, the same as September this year, so no capital gain there but no loss either.

If you go back three years to September 2022, the lower quartile price was $610,000, which would give a capital loss if it was sold now of $20,000 (-3.3%).

Go back four years to September 2021 and the capital loss would be $12,500 (-2.1%).

It’s not until the property had been held for five years that it would make a capital gain and it’s a reasonable one at $90,000 (18%).

If the property had been held for six years the capital gain would be $170,000, seven years and it would be $210,000, eight years $240,000, nine years $255,000 and 10 years $281,000 and so on.

These figures reinforce the old adage that property investment is a long-term game and should be considered as a part of a balanced investment portfolio. 

At Raine and Horne we have the knowledge and capability to seek out and negotiate on the purchase of good long term investment property and to properly manage the investment with a low 6.5% property management fee. 

Contact Graham McIntyre on 0276320421 - Raine and Horne Kumeu - Hobsonville

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