The Great Kiwi Dream - What do the Government’s new housing policies mean for you?
It is no secret that the demand for housing in New Zealand is outstripping supply, and the cost of purchasing property is at record-breaking levels that is simply not sustainable.
We all waited with bated breath for the Government announcement on 23 March 2021 of its plans to stabilise the housing market, and to bring the elusive dream of owning your own property back into the reach of many Kiwis, currently out in the cold.
While the Government sees that the changes will see first-time house buyers who will most benefit by these changes, the changes introduced will affect those who are already in the market as investors or owners of rental property.
Some of the significant changes are outlined below, but please keep in mind this list is by no means comprehensive and if you have rental/investment properties you should also consult your tax professional/accountant.
Residential rental property owners
· Interest on rental properties will no longer be allowed as a tax deduction.
· There has been an indication that Interest-only loans on rental properties may be limited, if not scrapped, in the future.
· The Brightline test will be extended to ten years (currently five), although new-build investment properties will still have five years.
New home buyers
First Home Grant Scheme (if you have contributed to Kiwisaver for at least three years)
$5,000 per buyer if you buy an existing property
$10,000 per buyer if you buy a new build
If you earn less than $95,000 as an individual, or $150,000 as a couple, you will now qualify for the First Home Grant scheme (previously $85,000 and $130,000)
First Home Loan Scheme
First-time buyers can borrow with a 5% deposit, instead of the usual deposit of 20%.
If you earn less than $95,000 as an individual, or $150,000 as a couple, you will now qualify for the First Home Loan scheme (previously $85,000 and $130,000)
The cap on the purchase price of the property increases by up to $100,000, depending on where you live and if it is a new build. This means that more properties will be available to first-home buyers seeking to borrow against a property – previously, you may have needed a 20% deposit, but if the property price is less than the new cap, you would only need 5%.
When do all these changes take effect?
The Brightline test
For sale and purchase agreements that become unconditional on or before 27 March 2021, the “old” Brightline test is applied.
All other properties with a settlement date on or after 28 March 2021 will be subject to the revised Brightline test.
For property purchased on or after 27 March 2021 – interest can be claimed up to and including 30 September 2021. After that, no interest can be claimed.
For property purchased on or before 26 March 2021, you can claim the percentages outlined in the table provided by Inland Revenue, with the percentage reducing over the next 4 years and being phased out by 1 April 2025. Therefore, from the 2026 tax year onward, you will be unable to claim any interest expense as deductions against your income.
· Your family home is not subject to any of the above rules.
· Property developers can continue to deduct interest in full.
· Commercial property owners can continue to deduct interest in full.
We understand these new rules will have caught many by surprise, particularly on the non-deductibility of interest. Add in the fact there is less than five days’ notice for the legislation to take effect, and you have many residential rental property owners scrambling for information.
Nobody has all the answers yet. The Government is to consult on the detail of these proposals and will introduce legislation shortly thereafter. We will update this post upon further announcements from the Government.
We recommend you speak to your accountant if you have any questions about how these changes impact you as a property investor.
For further reading
IRD has prepared two fact sheets about the removal of interest deductions and the extension of the bright-line test: