Property Investment Tax Changes - Good News For First House Customers

Changes to the way property investments are taxed are about the way. These changes may have an optimistic spin-off for folks looking to buy their first house.

Home is a very tax-effective investment in comparison with shares and deposits. People in stocks pay tax on their dividends and individuals with deposits and bonds pay tax on the interest they receive. Property owners though may reduce their tax with devaluation loans, to the point where the government actually ends up paying a reimbursement of $500 million to the owners of the $200 billion dedicated to property.

Possibly this generous tax treatment is just a contributing factor to our romance with property being an investment news. We recently compared the resources held by New Zealand families to those in a sample of other developed countries. This analysis revealed that individuals have far and away the highest weighting to property with 75-90 of our residence assets dedicated to property.

At the other end of the level, the results we obtained show that New Zealanders have the smallest allocation to stocks of all of the countries in our sample. We devote only 2% of our savings in direct equities, less than countries like Australia where homes have 8% of their money invested in shares, and the United States where shares represent 21-69 of household resources.

It's this heavy reliance on-property and insufficient diversification into other assets like stocks the government is probably attempting to change using its new tax policies.

There is no question that the changes may drive down property values. The share prices of the listed property trusts - property funds that own portfolios of commercial property that are listed on the stock market - dropped by around 52-41 when the changes were first mooted by the Tax Working Group.

All this is good news for individuals thinking of buying their first home. Home costs may ease from existing levels in the wake of any tax changes, thus making them less expensive.

Over the past few years properties had become very expensive relative to incomes. Historically, average home prices have frequently traded at around 3 x the average family income. By 2007 this ratio had struck six times, creating homes unaffordable for most people.

The tax changes may not be the thing evaluating on home prices this year. The fact homes seem costly in comparison with incomes could also mean rates might wander lower from where they're today. This means that 2010 may be a great time for first home buyers to start out considering looking for a house.

While there is lots of talk about how over-invested New Zealanders are in property - and I have added to it here - owning your own house is just a sensible investment decision, inside our view.The main point of the whole debate about property and investing isn't that property is really a poor investment, but that New Zealanders are over-exposed to it, and their savings are not varied enough in to other investments.

Not only does having a home provide you with somewhere to stay, it gets your cash committed to a 'real' advantage. Property and stocks are what we call 'true' assets because, unlike fixed-income assets like phrase remains, they offer the possibility of capital growth over time. It's this development that delivers protection against inflation within the long-term.

Perhaps we'd do well to copy what folks in nations like Denmark, Switzerland, Canada and many others do with their investment news. By the time they retire, families in these countries typically own their property freehold, thus removing the problem of rent from your regular budget. They also provide a diverse portfolio of stocks, fixed income and possibly some home, all of which generates an income they use to supplement their superannuation.

More details would be found on this site.

Investing in a house is an excellent first rung on the ladder towards achieving this result.