Interest rates put squeeze on income

Property investors need to raise their rents now to offset rising interest rates, the New Zealand Property Investors Federation says.

Thursday, July 3rd 2014, 12:00AM

by The Landlord

It requested information under the Official Information Act from Inland Revenue about the amount of tax paid by rental property owners.

IRD data showed that in the year ended March 2013, property investors paid nearly $500 million in tax on their rental income.

But in 2007 and 2008, when mortgage interest rates were high, no tax was paid.

That means that in those years when interest rates were at their peak, as a whole, rental properties cost their owners more than they earned for them.

NZPIF executive officer Andrew King said that should be a warning for investors now that rates were starting to increase again.

"It is a warning to rental property owners that rental prices need to rise now if they are to have any chance of even partially offsetting the current round of interest rate rises.”

He said the data discredited a widely-held perception that landlords had a tax advantage. They were the only years out of the past 33 where landlords had not paid tax.

"This Inland Revenue information confirms that rental property owners are taxpayers and contributors to the New Zealand economy."

The Tax Working Group claimed in 2009 that rental property should be taxed more as it took money out of the tax system than it paid into it. Only data from 2008 was used to back the claim.

Government then withdrew the ability of rental property owners to claim depreciation, a benefit available to other investments. That increased the cost of providing rental homes to tenants by $700 million a year, or $33.65 per week, per rental property, NZPIF said.

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