Friday 21st of May 2010

Property investors have been holding their breath for a long period of time waiting to see whether the government’s threats to give them the bash would come true.

They can now breathe a sigh of relief. The government was, as many expected, more mouth than biff.

The Budget included the predictable. Changes to depreciation; no capital gains tax; no stamp duty and no land tax.

The big worry was that some sort of ring-fencing of losses in LAQCs for property investment would be announced.

I have argued many times before that to single out one sector was unfair.

The changes it is making to LAQCs and qualifying companies have some logic to them. What is pleasing is that the changes are across the board, not just to property owning entities.

Also pleasing is that the government is closing down those who are rorting the system through Working For Families. I suspect this is a small minority of investors.

These changes to LAQCs make sense and will encourage investors to look at how they have structured their investments. Structuring has always been a hot topic for investors and will remain so.

It will be interesting to see how investors address this issues (email your thoughts to editor@landlords.co.nz or leave a comment below).

The biggest losers are tenants. There is no doubt rents will rise. Investors need to ensure their cash flows remain robust.  In some ways it is no surprise that tenants are the losers when a National-led government is in power.

While a number of commentators have said this is a good Budget for the savings industry and people who invest in financial assets, I don’t think it will make a material change to residential property investment.

Sure there will be some who are less enthused by the sector, but it will still remain popular.

What will change is the sort of strategies used. To move away from highly geared investments which rely on capital gains to work isn’t a bad thing.