GST hike to hit some property buyers

Unsuspecting investors could end up paying thousands of dollars more on property deals settled on or after October 1, as developers share the burden of tax hikes.

The change affects anyone who has entered into a conditional contract with a GST inclusive price before October 1, and could see a buyer paying several thousand dollars more for a property.

GST increases from 12.5 per cent to 15 per cent next month.

Barney Cumberland, senior associate at Simpson Grierson said GST registered sellers have a statutory right under the GST Act to increase their price in line with the goods and services tax.

"Even though a deposit may be paid prior to 1 October, what we call GST time of supply doesn't occur until the later time - post 1 October - when the contract becomes unconditional," he said.

An example could include a non-GST registered purchaser who has a contract with a developer to purchase a dwelling for private use off the plans.

Harcourts chief executive Hayden Duncan said the implications for anyone in the market for a property with a GST-inclusive contract, were significant.

"The banks lending criteria at the moment is so strict, that if a loan has been approved strictly to a level documented in a contract, and the developers then whack another 2.5 per cent on the purchase price, the purchaser may not even be in a position where they can settle because the banks may not be willing to fund it."

"Our concern is that people who are purchasing are effectively going to be in a position where they have paid what they consider to be fair reasonable amount for a property and the value goes up 2.5 per cent without necessarily the market moving."

"It could have a real inflationary impact on property."

Anyone who thinks they could be affected by the tax changes, should review their contract and seek independent advice, Duncan said.

KPMG tax partner Peter Scott said he expects the increase would have been factored into any quote given in the past couple of weeks.

However, the state of the property market may cause some developers to think twice about passing on the cost.

"There is a right under the GST legislation to increase the price by the GST rate increase, but obviously it is still a business decision as to whether or not that will be passed onto the customer."

"The state of the economy is such that sometimes it's better to have a property sale with a smaller profit, than no sale."

Cumberland said his law firm acted for a number of vendors and in the "interests of good PR" and making sure the contract didn't fall over, some said they would be bearing the extra cost themselves.

"We are certainly aware of instances where that approach has been taken."

- NZ HERALD ONLINE