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From 1 April 2011 the GST changes for professional Property Investors and Developers are all about ‘use’ and ‘activity’.
Buying and selling of land between GST-registered persons (or businesses) will be rated at 0% for GST. This means the GST will be removed from the sale price of land being purchased from and by a GST-registered person if it is put to ‘use’ as a taxable ‘activity’ (e.g. a GST registered developer is buying a property to do-up and re-sell at a profit from a GST registered vendor)
Under the IRD rules ‘land’ means land, an estate or interest in land, options to acquire land, buildings, fixtures, business premises, ‘not a supply of land intended to be used as a principal place of residence of the recipient of the supply or a person associated with them ‘.
This means if you are GST-registered and selling to another registered person for an activity attracting GST, the transaction will be zero-rated and you will be required to provide evidence to this effect. In other words IRD will need you to advise them in writing of the other party’s GST registration details and a statement confirming that the purchaser’s activity will be using the property for business purposes.
For example: A GST registered vendor selling a property.
1. A non-registered GST buyer purchases the property.
His offer for the property to the vendor is $180,000 incl. GST
The vendor pays the GST ($23,478) to IRD leaving him $156,522 net on the property.
The purchaser is unable to claim back GST from the IRD because he is not registered for GST.
2. A registered GST buyer, who fulfils the above criteria purchases the property.
In theory, he pays the same figure $180,000 (which includes GST) but, he subtracts the GST.
This calculates to $180,000 – $23478 = $156,522
His offer for the property to the vendor is $156,522 plus GST (if any)
Because of the Zero Rating Status of this transaction, there is no GST payable.
With this transaction, the purchaser doesn’t claim back GST from the IRD and the vendor doesn’t need to pay any GST to the IRD.
The net result in both cases is $156,522 to the vendor. He is not disadvantaged by either of the transactions.
In brief the changes are designed to stop avoidance – typically where GST claims have been made by a purchaser but no GST has been paid by the vendor – the changes make this impossible.
(Note: The GST registered Developer can claim back the GST on money he spends doing up the property but when he re-sells the property, he is liable to pay GST on the full sale price received.)
July 22 2011 | Uncategorized | No Comments »
Following on from my blog, Saving with Kiwisaver, I think it worth mentioning the Welcome Home Loan Scheme.
The Welcome Home Loan is offered to first home buyers by three New Zealand Banks, TSB, SBS and Kiwibank and is supported by Housing New Zealand.
It has been created to help first home buyers purchase property giving them the ability to borrow money with little or no deposit.
I won’t go into all the details of this scheme (go to: http://www.welcomehomeloan.co.nz/ to check it out) but basically, for those first homers who qualify:
- they can borrow up to $200,000 without a deposit
- for a sum over $200k the deposit required is 15% of the sum greater than $200,000
For example; If they wanted to borrow $230,000, the deposit required would be 15% of $30,000 which is $4500
Using the same $230,000 loan from the Aussie owned banks,
- a 5% deposit would require a $11,500 deposit (if you were lucky)
- a 10% deposit would require a $23,000 deposit and
- a 20% deposit would require a $46,000 deposit
In Hamilton we are finding, that with the slowing of the market and the general fall in prices, the price range up to $300,000 represents about 40% of the total number of houses selling and under $400,000 is currently about 75% of the market.
There is definitely an opportunity here, for young first home buyers to break into the Real Estate market. We all know that saving deposits has been a great hurdle for young people stopping them from buying houses. Along with the Kiwisaver scheme the Welcome Home Loan may just enable some of them to do this.
Houses at these price levels are usually tired and dated. However, often they can be improved dramatically by the home handyman and their values can be lifted considerably.
By dropping their expectations and the use of a paint brush, young people can use these houses as the first steps on the ladder to owning, nice homes for their families. They can also live securely knowing that they won’t have to move on, at the whim of their landlord, which is so often the case when renting property.
At the end of the day, your first home doesn’t have to be perfect. You’re using it to get on the ladder to your second and third home. You most likely won’t even own it very long. You’ve got to get onto this ladder early in your life, or you may never own property. To get bigger and better houses which will satisfy your needs latter in your life, most of us have to take advantage of Capital Growth which is associated with Real Estate. You can’t bank on saving the required money from your wages, we don’t earn enough.
In Europe, housing is extremely expensive. Most people never own their own homes, they rent all their lives. Home ownership is monopolised by the wealthy elite. New Zealand is quickly heading down the same road.
April 17 2011 | Uncategorized | 4 Comments »
Owning property in New Zealand is quickly getting out of reach of many of our young people today.
Saving the required deposits is getting more and more difficult.
The money that is being offered to our graduates coming out of University is hardly what you would call generous. Along with students loans, and the cost of living, the odds seem to be stacked up against our kids. Saving money for home ownership is going further and further down the priority list for many young people.
Mum’s and Dad’s, we must encourage our children to get involved with Kiwisaver.
The retirement aspect of this scheme for many young people may seem a bit too much like forward thinking, however the saving money for your first home idea is fantastic.
When you get involved with Kiwisaver you set it up as an automatic payment scheme and then literally forget about it. It’s a bit like ‘saving when you’re not saving’.
The money you put aside, 2% or 4% of your wages if you are employed, is soon not even missed. Your employer feeds in his 2% and each year the Government gives you $1000. With a bit of luck your providing organisation will invest your money wisely for you and may get a bit of interest as well.
Over a very short time, the balance of your account starts increasing very nicely thank you. You have geared your life around the take home pay from your wages, so the money you have saved is like a bonus.
My wife and I joined Kiwisaver exactly 2 years ago. My wife’s a nurse so her employer matched her 2%. Every month about $200 comes out of her salary. I’m self employed, for the first year I saved $100 per month to match the government contribution. I then increased my contribution to $200 per month.
Believe it or not, after 2 years, we have got between us over $20,000 in our Kiwisaver Accounts.
The point I’m trying to make is, that the money that Beth and I put into this scheme, we havn’t even missed it and now we already have a nest egg of over $20,000.
Now the significance for us is saving for our retirement, goodness knows how much money we will have in our accounts in eight years time when we retire. Maybe $100,000 who knows. We might even go on a swanky trip overseas and stay in a whole lot of posh hotels.
The significance for young people is that after three years this money can be partly used for a deposit on their first home.
Think about this, two lots of 4% saving from your wages, two lots of 2% contributions from your employers, two lots of $1000 from the govt. each year and hopefully two lots of interest earned. After three or four years, you are going to have a sizeable sum of money in your accounts. Except for the government contributions this money can be withdrawn and used towards a deposit for your first home.
This is a very easy and painless way to save money. Remember, its like ‘saving when you’re not saving’.
If you take my advice, everyone should be in Kiwisaver. In the long term, you’ll regret it if you don’t.
April 11 2011 | Uncategorized | No Comments »
As a Real Estate Salesperson I often need to motivate myself. It makes me feel good when I’m inspired by an event or an idea. It helps to keep me going and to keep me on track.
Being a great armchair sportsman, I always enjoy watching the All Blacks doing the Haka, especially before the big games.
I found this interpretation of the Haka which I thought I would share with you. I don’t know who wrote it or when.
It embodies a meaning which appeals to me. A winning All Black Team is a great inspiration and a source of pride for us all.
“We are the All Blacks, of the New Zealand people”
“We stand on this field arrayed for battle”
“At our backs we feel the might of tradition wrought by those who have gone before”
“Over our hearts we bear the Silver Fern, emblem of mana to die for”
“This challenge is now thrown out to you. Take it if you dare for we will not withhold ourselves this day and the faint of heart will surely be lost”
Whiti te ra! Hi!
The maori phrase Whiti te ra! Hi! is translated as
The sun shines! Rise!
June 12 2010 | Uncategorized | No Comments »
I would like to discuss two different scenario’s to illustrate my point.
1. A property is put on the market by a Real Estate Company $20,000 above the current market value.
- the property is caravaned by the Real Estate Company (ie the agents from the company view the property) The agents are not impressed with the price and their feedback is that the property is $20k over market. A negative attitude is immediately generated around the property. After the caravan there are some Agent/Client Buyer viewings but not many because most agents don’t want to waste their own time or their buyers time showing over-priced listings. Agents don’t like showing them because it makes them look inexperienced, they would rather show property which they consider is listed at market value and which they have a better chance of selling. Agent response to the property is poor. There may be a bit of activity from agents from other companies who have not caravaned the property but this soon dies away as word gets around the industry that the property is over-priced
- the property is advertised on internet and in the newspaper. The initial response to view the property is good from buyers and there are quite a few viewings. These are the buyers from the immediate Pool of buyers who are intensely looking at everything new that comes on the market. They want to buy property today. These buyers are very educated about the value of property, they have been in the market and have seen everything available at that time. They immediately recognise that the property is over-priced because they have direct comparisons in their mind from other properties which they have just lately seen. They mostly reject the property because they consider it poor value as compared with others. They actually may decide to buy other property they have been thinking about seriously because now, those properties look good value. (the over-priced listing actually helps sell other property)
- by luck, the vendor does get an offer from one of the Pool buyers. The offer is at market value ($20,000 below asking price) The vendor refuses the offer and won’t negotiate to the required level. He thinks he will get another better offer latter. The deal and the buyer is lost because they go and buy another house. (First Offer Syndrome, the first viewers of a house newly listed, are often the strongest buyers for the property because they are really in the market to buy a house today, they are not lookers or tyre- kickers) No other offers are forthcoming.
- Open homes are started. Once the immediate pool of buyers has been exhausted the only people who are attracted to view the property are those attracted by the advertising. Agents generally don’t bother to show the house until there has been a price drop. The buyers that come to the property are now actually the wrong buyers. They are looking for a property which is $20k better than the one they have seen advertised. They are dissappointed in what they see and consider the house not what they are looking for, consequently they don’t make offers. It is not the right sort of house that they are looking for. The right buyers for the house ( the ones who would make offers) don’t come to look because the house is out of their price range.
- Open homes drag on for months with little success, the vendor is staunch about his price and doesn’t make any price adjustments. The vendor firstly blames the Market for the lack of success, then he blames the Real Estate Agent, then he blames the Real Estate Company. Fewer and fewer people come to visit the house. The vendor gets very depressed and finally comes to the conclusion that his price is wrong. His circumstances now dictate that he must sell the property, possibly the Bank is demanding that he do so. He concedes to a price reduction. In the meantime the Real Estate market has dropped. He concedes to a listing price well below the initial market value. Finally an offer comes in. This is much lower than his initial offer. The buyer knows that the house has been on the market for months and has doubts about paying too much for the property in case there is something wrong with it. He also considers that the vendor must be desperate and refuses to negotiate to a higher level with his offer. Due to his circumstances the vendor now has to sell the property. The vendor has to accept the offer or due to his frustration about the whole process, he accepts the offer anyway, just to get away from the stress that he has put himself under.
- The marketing campaign for this property has been a nightmare for the vendor. His inability to recognise the market value of his property has cost him a huge amount of money and also a considerable amount of unneccessary stress. His life and his future plans have been disrupted for months. Opportunities that were once available to him have now perhaps been lost.
2. A property is put on the market by a Real Estate Company at the current market value.
- the property is caravaned by the Real Estate company. The agents from the company are impressed with the listing price and feel that it represents the current market value. A positive attitude about the property is immediately generated, agents can see the possibilty of making some money out of the listing. The pro-active agents go back to their offices and start phoning potential buyers suggesting that their clients view the property asap because it’s a good buy. Urgency is immediately generated to view the property before other people do.
- the initial response to the property is very good. Agent/Client Buyer viewings are very good. These are the buyers that the agents know and who they have been working with. Usually also, these are the buyers that the agents know they will make their commissions from. Buyers coming from the immediate Pool of buyers are all very well qualified and are coming with agent recommendations. They are also very educated buyers and they recognise immediately that the property has been listed at a fair current market value. The investors amongst them start doing their sums about possible renovations etc and about whether or not they can make money out of purchasing the property. The home buyers amongst them start getting emotionally attached to the property and look for local schools and whether or not their furniture will fit into the property etc.
- in the best case, multiple offers may be generated on the property. This means that there are multiple buyers for the property at the same time. Competition for the property is created. This is a fantastic situation for the vendor. Now the agents can say to all the interested buyers that:
“it’s no good coming in low with your offer, you will have to come in with your top dollar, otherwise someone else will beat you in the competition. You won’t get a chance to negotiate”
Some times in this situation, one or more of the buyers are so keen to buy the property that they make offers over the asking price, just to try and make sure they are the winners of the competition. All good agents should strive for competition. We do so because we know that, this is when we get the best money for our vendors and that, it is also when we look our best operating as sales people. People love telling their friends how they got over the asking price for their properties and how good their agents were at selling their property.
- the property sells immediately, with a possibilty of a price over the asking price. Having open homes sometimes is not necessary, as the property sells before they are programmed into the marketing campaign. The vendor is over- joyed with what has happened. He hasn’t had to suffer months of open homes and the disruption they cause. The sale process has happened quickly and without fuss and stress to his family. The project he wants to go onto suddenly now is achieveable because he has an excellent sale price for his house.
A fact worth mentioning is that, in a rising market the market can sometimes catch up to an over-priced listing. On the other hand, in a falling market the over-priced listing gets further and further away from the current market value.
I have been an agent in Hamilton for many years. I have seen these two scenario’s played out many times.I have seen people ending up loosing their houses to mortgagee sales because they havn’t been able to accept the value of their homes. I have seen people get huge sums of money over the asking price because our Company has generated competition for them. At the end of the day, a house is only worth what someone wants to pay for it. Agents can’t force buyers to buy houses. It is no good talking houses up in advertising because you are immediately found out when people view the homes. A house sells when a buyer and a seller agree on a price without bias. Real Estate agents are looking for fair market prices for both buyers and sellers. That is when we are doing our jobs correctly. Agents want people to respect and take their advice. I’m not going to give poor advice, I want people to continue doing business with me.
What road do you want to go down, scenario 1. or scenario 2?
Look at the market, look at your competition, choose an agent you trust and listen to his advice. Remember he’s the expert.
January 17 2010 | Uncategorized | 4 Comments »