Last week, as is generally the case in the fortnight before the budget, the speculation around likely announcements and policy changes began. There are a number of items that have been widely signalled, which although may not be intended to impact capital markets, will impact them.
I’m talking firstly about housing policy. The two key changes are to the “negative gearing” allowance for rental property owners and the extension of the “bright line” test to five years. There was heated debate on breakfast television between the sportscaster and the newsreader, each with their own situation in mind, with the impact on the economy latterly being introduced into the argument. As an investor, I’m a little indifferent - I’ve never been attracted much to assets that don’t deliver a cash yield where you rely on a capital gain for return. Nor did I particularly enjoy being a landlord for the short time I was.
However, I do acknowledge that a loss that could be offset against other income, coupled with a tax-free capital gain would have been attractive to many.
But it did get me thinking about the impact on capital markets and investment generally. We frequently talk about New Zealand’s love affair with property. For many, that relationship has become a little more difficult.
However… as one door closes another opens. There are other long-term, land-based assets now accessible to investors that have similar attractive characteristics and more. In the case of agriculture, investment returns have consistently outperformed most other assets, they provide a hedge against inflation, offering yield as well as the possibility of capital gain. Without some of those stresses and inconveniences of being a landlord! Shares in farming, horticulture, commercial property and residential property development assets are examples of land and property assets that are now available to own proportionally as investments and we are very pleased to facilitate that. As well as delivering the long sought after liquidity and transparency around the asset which has historically been a challenge to investors.
So they are viable alternatives to residential property. And we are now getting a signal from regulators suggesting capital may be better directed to these asset classes and providing capital that supports NZ business and the economy in general.
Of course, these views are my own and should not be interpreted as financial advice.
Ross Verry is CEO of Syndex and a shareholder. The views expressed above are purely his own. Please assess and research all your investment.