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The residential housing market is driven by market values. How can homeowners avoid CGT and improve the resale value of their properties and why need sellers to

consider valuations like CV, QV, or RV?

 

 

Bright-line Test and Capital Gain Tax

Seller’s Attention—Resale and Market Value

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Market Value—Result of supply and demand

 

Generally people value something that is rare such as gold or scarce because of limited supply. In terms of “market value” of a property which is defined as the price a willing buyer is prepared to pay and accepted by the seller, demand and supply pressure to close the deal. People value properties so much as necessity to bring up a family or as investment. That is why willing buyers tend to offer a higher price to outrun the competition.

 

To stop taking advantage of high market values since October 2015 the “bright-line" test has been used to concede CGT (capital gain tax) as panacea for NZ's unaffordable housing. If you look at reasons for price speculations, market values and resale values separately you would possible find the CGT is a blunt instrument. Capital gain can be easily fabricated through refurbishment, renovations or redevelopment.

 

 

Resale value—Attraction for potential buyers

 

The term “resale value” is not commonly used as people compare properties at market value, but it describes the emotional component when choosing a house to live in. Properties with higher resale values appeal to a larger crowd of potential buyers pushing up demand and consequently market prices. 

 

Not only the architecture of housing has changed over decades. People increasingly spend more time making house and garden looking good. When strolling down the street owner-occupied homes are more likely to find with well maintained section, washed drive way and pruned trees. 

 

Forming neighborhood communities when people talk over the fence, exchange plants for the garden and take care for each other make it obvious that lifestyle options have become the force to set resale values in today’s residential real estate market.

 

 

Good neighborhoods is worth money

 

It is not coincidental that residential areas with well maintained properties are people’s preferred choice. Who does not want to live in a tidy street with a friendly neighborhood?

 

The street character, noisy neighborhood and crime rates) can have side-effects as well as the dated appearance of a property. What impacts the resale value?

 

· Location can be less desirable for family or lifestyle

· Size e.g. a home with more living space is a better choice

· Two Bathrooms, or a master bedroom with  en-suite

· Number of rooms, where people can do different things

· Modern design (e.g. open-plan kitchen) good to communicate, congregate or as retreat.

· Multi-purpose garaging, room for hobbies and play grounds for kids

· Single-storey home on flat section —Do not buy it when surrounded by multi-storey homes.

 

 

Just few words to street appearance

 

Properties draw a lot of conclusions if over grown with bush and trees or the exterior appearance is full of clutter.

 

Keeping a landscaped section in good shape, house and driveway washed and the lawn tidy are value enhancing features. Damage through excessive shade from vegetation, mould, blocked drains/gutters and up-lifted pavers are easy to avoid.

 

Keeping airflow around the house, sunlight and a welcoming appearance make a huge difference. In contrast neglected properties form the neighborhood, too. 

 

 

Market value vs. replacement value

 

The replacement value equals the rebuild costs in the event of a total loss. The shift by insurers from undefined cover  to defined replacement costs (sum insured) shows the shift in the residential housing market. The onus to set the right replacement value for a rebuild (sum insured) stays with the homeowner.

 

In other words the replacement value is your housing standard covered by the house insurance policy (a rebuild to the same standard).

 

 

Selling – be aware of the “bright-line" test

 

People sell properties to unlock the equity in their home. If you followed the debates around capital gain tax (CGT) you possibly know that NZ introduced from 1st October 2015 the “bright-line" test. That is a set of rules to determine whether CGT has to be paid when selling a residential property or not.

 

New is the definition that residential properties, sold within two years of acquisition, are subject to tax. Exemptions for "the main home" are defined, however it is important to note that the "intention" test still applies. For instance buying and renovating a main home with the intention to sell for profit is classified as “tax sale”. 

 

The new introduced taxation rules include plenty of provisions to tax the capital gain on property transactions for properties held for more than two years.  Visit the Inland Revenue website to see examples illustrating the specific of this law change.

 

 

 

Take Away

It can be quite confusing when it comes to assess the value of a property. Different service providers look at different data and use their own tools to estimate the property value. CV, QV and RV) are commonly used to estimate the “market value” and to set council’s rates and levies. For sellers the real estate appraisals must also be based on factual data (sale figures from a specific area and time frame).

 

In contrast the replacement value is a price index related figure. Keep in mind that home improvements (upgrades) increase the comfort like e.g. double glazed windows and add at once to the resale value. 

 

Ultimately it is important to understand that the resale value has an enormous incentive to motivate a willing buyer. For instance who does not want to live in an energy efficient and  modernised home with an exquisite street appearance? On the other hand be aware of the “bright-line” test when selling, know the provisions to pay CGT and the exemption rules. Good luck.

 

 

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