Capital gains would turn off residential investors

How would a capital gains tax affect the outlook of residential property investors?

Labour and the Greens promoted a capital gains tax in the run up to the elections last weekend.

When researchers at Auckland-based Crockers asked investors how the introduction of a capital gains tax might affect their investment plans, 43% indicated that they would not make any additional investments if this happened, and 14% said they would reduce the number of properties they own. 

Three-quarters of the surveyed investors are more than 50 years old and around two-thirds own just one or two properties. 

For half of those interviewed, the value of their Auckland investments was under $750,000. 

The main reasons for investing in property are for retirement and general savings, with many indicating that the tangible nature of property made it more attractive than other investment options.

Some also felt that property provided safer returns. For 59% of the investors surveyed, their investments were a way of earning extra income, rather than being a main source of income. 

Crockers also looked at the “hottest” suburbs in Auckland.

Eastern suburbs’ sales prices are well above the average for the Auckland region, currently 77% higher. 

Growth in sales prices for the eastern suburbs has been largely in line with growth for the region – Auckland region prices grew 30% from 2011 and eastern suburbs grew 34%. 

Sales numbers have increased over the past four years but have not returned to the high levels seen before the August 2007 financial crash.

Average rents across the eastern suburbs also sit well above the average for the greater Auckland region.

Since 2011 consistent increases in rents saw two-bedroom house prices increasing 14% and three-bedroom prices increasing around 10%.

Prices for both two-bedroom and three-bedroom rentals are mostly flat on last month, with one exception. 

The rental price for two-bedroom properties returned to $350 after a dip last month, resulting in a slight decline in the Auckland two-bedroom premium over the rest of the country to 18%.