Peter Thompson: Demise of Capital Gains Tax brings ‘certainty’

Peter Thompson, Managing Director, Barfoot & Thompson
Peter Thompson: Demise of Capital Gains Tax brings ‘certainty’

The Government’s decision to not pursue any form of capital gains tax and the PM’s commitment to not revisit the imposition of such a tax on her watch is extremely positive news for the housing market.

It probably buries the shadow of a capital gains tax on housing being imposed in the future for at least a generation.

It is a strong boost for ‘certainty’ – a vital commodity when people are thinking of taking on a large mortgage, which for most people represents the largest single financial decision of their life.

While there was never ever any suggestion that a capital gains tax would apply to owner-occupied homes, the uncertainty the potential tax caused was impacting on all property values.

Too many people were left wondering if the imposition of such a tax would lead to a significant downturn in property prices.

The uncertainty was contributing to caution and allowed the growth of a ‘let’s wait and see’ attitude to develop.

That’s now behind the market.

While the Government’s decision will not eliminate all concerns about the future direction of house prices, it has certainly addressed what had become the elephant in the room.

There are always concerns and speculation about what is happening to house prices. Currently some of the more relevant are whether we will follow Australian volatility, pressure on future trading bank lending created by a potential increase in Reserve Bank reserve limitations, and the economy’s slowing growth.  

These concerns are part of the normal background noise that we have all learnt to live with.

The Auckland market is currently a buyer’s market. While prices have either marked time or declined by a few percentage points over the past two years they have not retreated to any great extent.

In many other urban centres prices in the main are continuing to increase but the upward price cycle is slowly coming to an end and is likely to soon flip into the flat conditions Auckland entered in late 2017.

With human nature dictating that sellers want the best price possible for their property while buyers want to pay the sharpest price possible, to make headway in Auckland at present requires ‘realism’ on the part of both parties. Those with unrealistic expectations either do not sell or buy.

When talking about Auckland property, a point not often taken into consideration is the size, diversity and cosmopolitan nature of the urban area. It is not one but multiple markets which can be experiencing different price signals at the same time.

Also, attitudes to what constitutes a desirable house in Auckland are also changing rapidly with apartments, town houses and terraced housing becoming popular, particular if they offer convenient transport options, the chance to buy in what are considered desirable locations or modern lifestyle living.  

Trying to pick when the flat housing market will come to an end is something of a fruitless exercise and for owner occupiers (by far the most common form of housing transaction) is not that relevant.

If you’re selling and buying in the same market, then what you win or lose on one end of the transaction you should recoup on the other end.

If you are buying only, then you’ll likely to be an owner for some seven years, and if you paid close to market price history says time will ensure you will do reasonably well.

With the threat of a capital gains tax now buried, the best thing that could happen to the housing market is to put aside speculation about what is likely to happen to house prices and just live with the reality of what is in front of us.


Peter Thompson

Managing Director, Barfoot & Thompson

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