Epsom Weekly - 22/03/2024

Tony Alexander: Survive to ‘25 - why we’re all holding on till interest rates drop

Economic outlook for 2024 has worsened but there are reasons for optimism in 2025.

ANALYSIS: Since the start of the year there has been a decided shift for the worse in the tone of commentary regarding New Zealand’s economic growth prospects this year. I found the shift well encapsulated in a phrase doing the rounds of many businesses at the moment: “Survive to ‘25”.

This refers to the common view that this year will be very rough for many sectors but next year will be better. Why will this year be rough and in fact much rougher than earlier anticipated? There are a number of reasons.

First, we have the evidence in hand of far greater weakness in household spending than we thought was occurring, especially in light of the record net migration gain this past year of 134,000 people.

Second, the recent prediction of further interest rate rises has scared people right when there was a feeling developing that maybe the worst of the interest rates pressure was behind us. There was never much chance of the Reserve Bank taking the Official Cash Rate up another 0.5 percentage points but the reaction in some quarters shows just how nervous many people are.

Third, we are seeing an increasing number of reports in the media of property developers facing difficulties – which always happens at this point in the cycle – and of labour hire businesses going into liquidation.

Fourth, the Government has been explicitly warning about a worsened economic outlook and the need for additional fiscal restraint at a time when redundancies are already rolling through the recently bloated public sector.

Fifth, there are no numbers to show this but in all probability people have used up the cash savings created during the pandemic and businesses perhaps have also reached the same position.

What about reasons for having greater optimism about 2025?

First, monetary policy is expected to be eased potentially before the end of the year and continue doing so at uncertain speed through 2025. When I say “uncertain” I mean that not a single one of us, including forecasters at the Reserve Bank, has the foggiest notion how much lower interest rates will be at the end of 2025 than they are now. But seeing as it is tight monetary policy primarily causing economic weakness, easing up will improve things.

Second, the world economy is expected to be stronger next year than this year and that suggests better inflows of tourists and some better demand for our commodity exports.

Third, house prices are likely to have stronger upward momentum from later this year and growth through 2025 will drive a positive wealth effect through the economy.

Fourth, surely by the end of this year the pullback in consumer spending from the pandemic binge on things like spas and home renovations will be over. Surely.

Fifth, there is a large amount of infrastructure work to be done all around the country and the Government is setting the posts in place to facilitate an early and solid lift in such activity.

Sixth, while booming net migration boosting our population 2.6% in the past year may not have had a noticeable upward impact on retail spending so far, at some stage this is expected to come, especially as flows are likely to remain firm in the coming year.

Some of these positives are articles of faith and perhaps that is why we feel reasonably dour in our thinking currently. It is hard to see the solidity of better economic times when cash flow pressures in particular on businesses and households are so strong at the moment.

Personally, I struggle to see that things will get a lot better until interest rates have fallen at least 1%. Maybe that will have happened by the middle of next year. All people have to do is, as noted above, survive to ‘25.

-TonyAlexanderisanindependenteconomicscommentator.Additionalcommentary fromhimcanbefoundatwww.tonyalexander.nz

The bright-line property rule

If you sell a residential property within a set period of time after acquiring it, you may have to pay income tax on any gain on the sale, unless an exclusion or rollover relief applies. This also applies to New Zealand tax residents who sell overseas residential properties.

Go to the ‘Property tax decision tool’ at the bottom of this page to work out if the property you are selling is taxable under any of the property rules, including the bright-line property rule.

The bright-line periods

The bright-line property rule looks at whether the property was acquired:

• on or after 27 March 2021 and sold within 5 years for qualifying new builds or within 10 years for all other properties

• between 29 March 2018 and 26 March 2021 and sold within 5 years

Changes are proposed

The Government has announced the law will be changed. The bright-line property rule will only apply for properties sold on or after 1 July 2024 if the property is sold within 2 years of acquiring it.

When a property is acquired

For tax purposes, a property is generally acquired on the date a binding sale and purchase agreement is entered into (even if some standard conditions like getting finance or a building report still need to be met). Full information on when a property is acquired is found in 'QB 17/02' on our Tax technical website.

The date you acquire property determines which bright-line period applies - whether it is for 2, 5 or 10 years.

This will also determine which set of rules relating to the main home exclusion will apply to your property.

Bright-line period start and end dates

The bright-line period generally starts from the date you bought the property which is the date the property’s title is transferred to you (generally the settlement date) and ends when you enter into a binding sale and purchase agreement to sell the property. For properties acquired off the plan, different rules apply.

Property acquired on or after 27 March 2021 is treated as having been acquired before 27 March 2021, if the purchase was the result of an offer the purchaser made on or before 23 March 2021 and that offer could not be withdrawn before 27 March 2021. This means that the 5-year bright-line period applies.

Selling residential property after the bright-line period ends

The bright-line property rule does not apply if you sell a property outside the applicable bright-line period. But other property sale rules will still apply when you:

• bought the property and you had an intention to sell it

• you have a pattern of buying and selling or building and selling your main home

• or a person you’re associated with are in the business of property dealing, developing or building and the property was bought for the business.

Situations where the bright-line property rule does not apply

Generally, the bright-line property rule does not apply to a sale of property that has been your main home.

Different criteria apply to qualify for a main home exclusion depending if the property was acquired before, or on or after 27 March 2021.

Business premises and farmland are also excluded.

Full or partial relief is available for certain types of ownership transfers.

The bright-line property rule does not apply if you’re the executor or administrator of a deceased estate or you inherited the property.

Residential land withholding tax (RLWT)

If you're an offshore RLWT person and have a sale subject to the bright-line property rule, a withholding tax will be deducted at the time of the sale unless a valid certificate of exemption is held.

The residential land withholding tax (RLWT) should be deducted at the time of sale by your conveyancer.

InformationSource:https://www.ird.govt.nz/property/buying-and-selling/when-you-need-to-pay/thebrightline-property-rule

Thinking of buying or selling a property? Please contact our award winning team today. We look forward to being of service to you and help with your property needs.

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WHERE to go

A visit to Highwic this Easter will keep children of all ages entertained!

Can you spot the Easter Bunny and their friends? These rascally rabbits appear to be hiding at Highwic and we need your help to find them!

Children can explore the house and our award-winning heritage gardens while they search for the Easter Bunny.

It is free for children to participate in the trail; however normal admission ($10 per person) to the house applies for adults. Please note there is a maximum of four children per one paying adult and children must be accompanied by an adult.

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