GST to impact substantial investors

Friday 4 June 2010

An increase in GST will have a significant impact on property investors with substantial portfolios.

By Maddy Milicich

GST is set to rise from 12.5% to 15% and is considered the second biggest tax issue announced in the May 20 Budget to affect residential property investors.

A survey on recorded depreciation as the tax change which will have the largest impact. In second place was GST changes. Just under a third of investors surveyed felt this would be the change to have the largest impact.

There are likely to be impacts on cash flow, particularly around the implementation stage, plus the increase may affect rents and house prices further down the track.

Rents will inevitably have to rise in order to compensate, simple as that, says Hamilton investor Robyn Masters.

"For our own livelihoods we need to increase rents, just like any retail shop would do," she says.

Masters believes GST is one of the biggest issues for investors to come out of the Budget.

"For property investors with multiple properties, GST increases are a huge deal. It may look like a small percentage increase, but if you add everything up per property, for example, rates, insurance, property management fees etc, and then times that by multiple properties, that's a huge increase.

"If it was just GST alone, without depreciation, it wouldn't be so bad. But the combined costs will be significant."

Negatively geared investors will be the worst hit, despite being able to pocket more income through personal tax cuts.

In terms of the impact on house prices, Mike Shaw, tax partner at Deloitte believes the rise in GST will also put pressure on house prices to increase, as the cost to build increases.

"Property developers and spec builders will want to recover their extra costs, which will feed through to all house prices at some stage."

He says that will ultimately mean a higher cost of entry into the market and yet more pressure on rents to rise.

But he says it is hard to predict just how much rents and house prices will be affected, as there are many variables impacting on the market.

Comments from our readers

On 4 June 2010 at 7:11 pm john said:
If Robyn is a significant investor in real estate and is upset by the GST increase, then maybe she should consider selling up her residential portfolio and purchase commercial properties. As a commercial landlord, I am a nett collector of GST and so welcome the increase because I'll get to earn more interest on the money I will collect and hold on behalf of the IRD.
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