The negotiations continue, and while we might not have a confirmed coalition government at the time of writing this, we have an idea of a few policies this new government will be wanting to bring to the table.
National, ACT and NZ First campaigned heavily on the changes they’d make to the New Zealand housing market. But how could these potential policy and legislative changes impact first-home buyers, homeowners, and property investors?
The potential changes
Right now, the changes are all speculative. We can only go on what’s been discussed and disclosed by these parties, and we won’t know what material effects this will have on the market until they’re brought to Parliament.
But that doesn’t stop us from examining what we know and what’s been said, theorising on the potential impacts these proposed changes may have.
We’ll look at the possible changes to the Bright-Line Test, the prospect of foreign buyers being allowed back into the market, and the potential reintroduction of Interest Deductibility.
The Bright-Line Test
First introduced in late 2015, the Bright-Line test, broadly speaking, stated any profit made on residential property that wasn’t the main/family home and was bought-and-sold within a two-year period, would be treated as income and therefore taxed.
The idea was to dampen property speculation and make it less attractive for property investors to quickly flip houses.
In 2018, the government extended it to five years. And in 2021, it was extended to 10 years, meaning many investment properties sold before they had been owned for 10 years would have the profits taxed.
Proposed changes to Bright-Line
The National Party has stated its intention to roll back the Bright-Line test to two years from the current 10.
ACT, on the other hand, wants the Bright-Line test removed entirely, while NZ First has not stated a clear position on the matter. This will likely be a point of discussion and negotiation between the coalition partners.
Lifting the ban on foreign buyers
Another of National’s proposed changes is allowing foreign buyers back into the property market, albeit only for properties with a price tag of more than NZ$2 million and sporting a specialist tax.
It’s argued this won’t have much effect on first-home buyers, as $2 million houses aren’t generally the type of property a first-home buyer would be purchasing. It could potentially help or hinder next-home buyers and property developers, though, as these two groups may be competing with, or selling to, foreign buyers for the same or similar properties.
At this point, the chance of this change going through is mirky. While ACT has supported foreign investment in the past, NZ First was part of the government in 2018 when the ban was passed. It’s likely it won’t support this change, and as it is now needed by National to make a majority government, they may prevent this one from coming to fruition.
Interest Deductibility and Negative Gearing
Before 2019, property investors had two avenues to offset potential losses. Let’s imagine an investor was renting out a property for $500 a week but were paying $1,000 in mortgage interest charges, costing $500 in total each week.
Generally, many property investors work as well as own property, so they have two sources of income. Under the old rules, our example investor would have been able to claim this $500-a-week-loss against their primary income. This was called Negative Gearing.
But in 2019, the rules were changed so that total expense deductions for a rental property could only be claimed against the rental property income and not claimed against their salary and wages. This ring-fenced the losses to the property, but still allowed property related expenses including interest expenses to be claimed against the rental property income.
Then in 2021, during the property boom, Interest Deductibility was removed for all rental properties purchased after 27 March 2021, while being phased out over a four-year period for rental properties that were purchased before that date.
Will Interest Deductibility be reintroduced?
At the end of August, National released its Back Pocket Boost which outlined their intention to reintroduce full Interest Deductibility by 2026 at the following rates – 50% at 1 April 2024, 75% at 1 April 2025 2025, with restoration to 100% on 1 April 2026.
NZ First also supports its reintroduction but has not provided a timeline, while ACT, on the other hand, wants to abolish the current rules and fully reintroduce Interest Deductibility as soon as possible. Overall, this means this change is one that is likely go through, the only question will be how soon it will be implemented.
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