Wellington Property Investors' Association

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09-02-2010

Michael Laws: You're a Shylock industry

ML: Michael Laws, Radio Live host
AK: Andrew King, Vice President of the NZ Property Investors' Federation.

Listen to  the interview on Radio Live, select Tuesday (09/02) at 9.45.

ML

Andrew, good morning to you

AK

My name is Andrew King, I'm the Vice President of the Property Investors Federation. So I just wanted to talk about the tax situation. There's a few myths around property tax. The same rules that tax property are exactly the same rules that relate to businesses, or investments or shares or anything else. There's no difference between the tax rules.

ML

Yeah, yeah, but a but, yes there is. And that's why the Government is going to change the law. Andrew, it's sophistry to argue that.

AK

Ok, what is it?

ML

Alright, it's simple, if you own properties as a business you're meant to pay taxes. But there are a lot of what we could call hobbyist property investors in New Zealand who would not consider this is a business investment and who do not pay tax when they sell their house and pocket the capital gain.

AK

Ok, if I buy shares and I borrow money to buy those shares and the dividend doesn't pay enough to cover the interest on those shares then I make a loss. I'm allowed to write that loss off against my ...

ML

And that's wrong too, that's wrong too

AK

If I buy shares for a dollar and sell them for two dollars I get to keep that dollar without having to pay tax on it. What is the difference between that and between...

ML

Nah, nah, nah, no. You're trying to justify something that is wrong with something else that is wrong. That isn't an argument and no wonder the Government is going after you people if that is the logic you are using. Andrew, you're a speculator, at the end of the day. You work in a speculative industry.

AK

No, no, no, wait a minute, no!

ML

You're a Shylock, at the end of the day. You're a Shylock industry. And your industry

AK

Michael, please can I say. This, this...

ML

I'm just telling you what you are.

AK

I buy rental properties and I provide people with homes. A speculator is

ML

No you don't. You're a liar, Andrew, you're a complete liar. You don't do this as some form of altruism. You do it for money. Your job isn't to create homes for people, it's to make money for you.

AK

Look, you were calling me a speculator. All I am saying to you is I'm not a speculator. I provide rental properties...

ML

No, no, you're worse than that.

AK

I provide rental properties for people to live in. A speculator or a trader or a developer is somebody who trades properties. Now, if somebody trades property they deserve to pay capital gains tax, and they do. The tax department...

ML

And so should you.

AK

Million dollars to investigate those people. They actually increased the take from those people, from speculators, by a hundred million dollars. It was a good thing to do. We are very happy about that because those are the people who give us a bad name. We provide rental property. We are...

ML

Wait on, as I said to you, as I said in my introductory remarks at the moment. They don't go and make you rich. Particularly at the lower end of the market. The reality of the situation is that you provide rental properties for the purpose of getting your renters to pay the mortgage which you borrowed to in actual fact purchase the house. Where you make your money, as everybody knows, Andrew, is when you sell your property and pocket the capital gain. Now you can declare that this is an investment and you're absolutely right. The more honest amongst you, amongst your retinue, will say this is my job and I'll pay tax on the income that I've earned. But on the main, property investors go into the property investment market because of the tax advantages that drive their behaviour.

AK

What are the tax advantages?

ML

What the Government is doing today is saying “We don't want you to go into property investment, we'd like you to go into something more productive”.

AK

What is the, I'm mean, that's a good argument too. The productive society. People say we're not part of the productive society. Well we do. We pay money for banks, we pay for property managers, we pay for plumbers, for electricians, to a whole heap of tradespeople. And if we don't house people...

ML

And you price it

AK

Where are people going to live? Because it's ...

ML

And Andrew, you price property out of reach, particularly at the lower end of the market for ordinary New Zealanders.

AK

A productive economy is based soley on people producing things. If that were the case...

ML

Everyone disagrees with you Andrew. Have you noticed that everyone disagrees with you?

AK

No, No I haven't actually. Hey, hang on

ML

It's not just me, its the Government, its Treasury, it's the Tax Working Group, it's those involved in trying to get the productive market.

AK

Do you listen please

ML

Yes, Andrew, everybody disagrees with you.

AK

Hey! Listen, ok

ML

And why would they disagree with you?

AK

… Inland Revenue. Michael?

ML

What about the Inland Revenue?

AK

They came out to a Select Committee last year and they were asked by the Select Committee “Does property have a tax advantage?”. They clearly said “No”, they said “No tax advantage”.

ML

No, nuh, nuh, no. They said “Yes” Andrew, and to make matters worse the tax property group agreed with them. The Tax Working Group. And all the Tax Working Group said is “this is a barren investment. If you keep on investing in property at lower end of the market, you can rent it out to people who really could just as easily be in a State House you're gonna make the gain later on. If you're going to invest, invest in something productive” and thats what the tax changes are designed to do.

ML

[after a news break]

Now, very interesting discussion/argument with Andrew King, is that his name? From the Property Investors Federation. I'm sorry I get a little intolerant as you probably worked out with people who claim they are doing things for reasons they are not. The suggestion that property investors are involved in property for some form of social altruism because they really want to help poor people rent from them is just the sophistry nonsense that it is. But I don't, you send me your emails and see what you think, particularly those of involved in property investment. But I assume anybody involved in property investment, I use those words in sort of speech marks, um, is in it for one reason and one reason only. And lets be honest about it, it's always attracted the “get rich quick” components. It's always done that, and thats why you have seminars and says “you don't put your money in the sharemarket, you don't put it banks, for gods sake don't go and put it into anything productive. Go and put it into property, you know, because that's where the money is”. Don't be ridiculous. And 9% of New Zealanders have bought that message, and that's why they've got involved in it. That has created a cockeyed property market which is out of kilter, which has meant that particularly lower priced houses have been over priced and as a consequence of that younger people haven't been able to move into the property market. The Government wants to do something about it, wants to encourage people from putting it into non-productive industry, property, and put it into productive investment and thats why you they're looking at the tax changes today. It's as simple as that.

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