The Government has released a package of housing policies aimed at increasing the supply of houses and curbing demand by investors.
Here is a summary of the changes:
- Bright-line test extended from five to 10 years
People who buy and sell a property within 10 years will need to pay income tax on any profit made.
The test for new build investment properties will remain at five years.
The family home and inherited property continue to be exempt from the bright-line test.
The new rule will apply to property acquired on or after March 27.
See this sheet for more.
- Remove ability for investors to write off interest expenses
Property investors will no longer be able to offset their interest expenses against their rental income when calculating their tax.
The Government will consult on the detail of the proposal Cabinet has agreed to, and legislation will be introduced thereafter.
Consultation will look at an exemption for new builds acquired as a residential investment property, and consider whether all people who are taxed on the sale of a property (for example under the bright-line test) should be able to deduct their interest expense at the time of the sale.
The legislation will apply from October 1.
Interest deductions on residential investment property acquired on or after March 27 will not be allowed from October 1.
Interest on loans for properties acquired before March 27 can still be claimed as an expense. However, the amount someone can claim will be reduced over the next four income years until it is completely phased out by April 1, 2025.
See this sheet for more.
- Price and income caps on First Home products lifted
More first-home buyers will be eligible for the existing First Home Grant and First Home Loan.
The Grant provides eligible first-home buyers with up to $5,000 for individuals and up to $10,000 for two or more buyers to put towards the purchase of an existing home.
Buyers of a brand new home can receive up to $10,000 for individuals and up to $20,000 for two or more buyers.
Under the First Home Loan, a buyer only needs a 5% deposit. First Home Loans are issued by selected banks, building societies, and credit unions, and underwritten by Kāinga Ora - Homes and Communities.
The maximum income people can earn to receive this assistance will be lifted from $85,000 to $95,000 for single buyers, and from $130,000 to $150,000 for two or more buyers.
Price caps on homes that can be purchased using the assistance will be lifted as follows:
The changes will take effect on April 1.
See this sheet for more.
- RBNZ restrictions of bank lending still being worked through
The Reserve Bank (RBNZ) will in May report back to the Government on the possible introduction of debt-to-income (DTI) ratio restrictions and restrictions on interest-only mortgages.
The RBNZ says it already has the power to restrict the use of interest only mortgages.
The Government would need to give the RBNZ DTI tools. It's nervous about doing so, because it doesn't want these hampering first-home buyers' efforts to enter the market.
- $3.8 billion Housing Acceleration Fund
The Government will set aside $3.8 billion to help fund infrastructure around housing developments, including roads and pipes to homes.
The key components of the fund include:
- An infrastructure fund to unlock a mix of private sector led and government led developments in locations facing the biggest housing supply and affordability challenges, and
- additional funding for the Land for Housing Programme to accelerate development of vacant or underutilised Crown owned land, operate in more regions, and deliver a broader range of affordable housing options for rental and home ownership.
Cabinet will consider the detailed criteria of the fund in June. The Government expects money to start going out the door in the second half of the year.
The Government will also help Kāinga Ora to borrow an additional $2 billion to “assist in bringing a range of development forward through strategic land purchases”.
See this sheet for more.
507 Comments
No one said you were evil and out to screw tenants over. But it's a bit rich to claim you're not rich when you own an investment property and a share in the home you live in, and stand to inherit at least some of the other share. I don't think you realize how much better off you are than the vast majority of NZers. The fact you choose to spend money on an investment property rather than spending it on things like replacing the dishwasher doesn't make you not-rich. And if you've owned your investment property for more than six months you've already substantially benefitted financially from government policies that have worked in your favour. To be frank, it looks like you (a) want a trophy for providing the service you paid for, and (b) are throwing a pity party for yourself now that it looks like for the first time in a very long time government policies aren't going to be entirely in your favour for once.
Dave, you may not be indicative of the general situation I feel. Apologies.
My general point is that surely not every landlord with multiple properties is on the bones of their a*rse right now with a tale of woe? Someone must be doing well out of astronomical house price growth?!
Dave, you may not be indicative of the general situation I feel. Apologies.
My general point is that surely not every landlord with multiple properties is on the bones of their a*rse right now with a tale of woe? Someone must be doing well out of astronomical house price growth?!
"The reason I own an investment property is insurance against house price increases."
There's the problem, right there.
The expectation of ever-greater price growth feeds on itself. People don't sell, even when it would make sense, because they worry they won't be able to get back in the market. It's an insane cycle that is breaking our society and our economy, even though it's based on apparently rational behaviour at the individual level. How can it be broken other than by making holding property (other than the one you live in) unattractive?
"Can't eat capital gains"-- what do you mean?
If you sold your house you'd have enough to live on for many, many years.
It's another layer of insanity to our economy -- people expect to keep getting richer and richer until they die, rather than saving money and actually spending it at some point.
He means he can't eat capital gains, it's simple english. Property investors are asset rich but cashflow poor for many years, something you and many other, blinded by jealousy don't understand. Most investors need to work to make ends meet, that is cashflow, money coming in minus money going out. Yes there is, in the long term sizeable capital gains but until one sells he can't eat the capital gains
The point is that property investors in that situation have made a choice to be cashflow poor, and could very easily choose not to be. If youre cashflow poor purely because of your own choices about how you choose to invest, then you don't really have grounds for complaint.
Dave - perhaps you should pay a business rate of lending as well then if you really are a business and want to deduct expenses like other small businesses that take on debt?
How does 8% p/a sound to you?
No serious business with a decent balance sheet and cashflow is paying 8%.
We did one last year for 4% floating and have just done one a week ago fixed for 2.3%. No residential security.
Larger businesses with access to offshore funds have overnight rates of sub 1% in some cases.
Did I say property speculation was a serious business - you must have mistaken me! And what do you mean by a healthy balance sheet - as that doesn't really mean anything in 2021! You just leverage as much as possible and if it doesn't work out either the central bank drops rates more or buys your bad debt from you.
No argument against larger business with access to other debt markets/instruments.
All it does is completely screw over the people with 1 property and tilt it in favour of those with many as they will be able to organise their affairs in a way that favours them. Very much like the way a capital gains tax only affects those who sell. If you are rich enough you just never sell.
Kate - darklords saying they're going to push up rents to cover costs, but rent is measured in CPI, which in theory will result in higher measured inflation, and an argument for higher OCR and mortgage rates (which will be non-deductable). In theory, raising rents at a rate above the general inflation level, will be detrimental to landlords...an own goal so to speak.
Of course, if RBNZ decide they aren't raising rates when measured inflation rises, well we really are in a rigged system.
Details are here, and they are following the UK model: https://www.interest.co.nz/sites/default/files/embedded_images/IR%20FAC…
The previous extension to the bright line test only applied to houses bought after that date. So if you bought when the 2 year bright line applied under National's rules, then the 5 year test does not apply to you. It should also mean your house is unencumbered by that test, now.
Sell up and live the life of Riley. Your capital gains are staggering, the pitiful amount of tax they will take is neither here nor there. A worker in a factory on $45,000 a year is paying tax on every dollar + probably paying someone like you rent. Isn't it amazing how some of the wealthiest people among us continue to be absolute miserable sods who aren't thankful for their astronomical gains but instead choose to grumble about the few crumbs they are losing from their enormous windfall of bread.
About 8 out of ten of our townhouses are being built for investors. I’d expect a lot will pull out.
We’ll cancel the next development. Good and bad, building is fun and profitable but the reduction in new builds and resulting shortages should be good for price inflation for my existing portfolio
The Government's new rules to curtail property investors who, they claim, are ramping up market prices for houses will not work. The Bright Line Test is now a fully fledged Capital Gains Tax just with a different name. This new regime will do just the opposite from what is intended. Investors will either hang on for 10 years, thereby depriving the market of stock and pushing up prices, or more likely investors will buy and sell at will and just pay the tax. After all, if an investor can make a quick $100K profit and end up with say $80K it's not a bad days work. So I'm picking that investor/speculators will go hammer and tongs as there is little incentive to hang on for a tax break. As for the tax deductions that have been wiped, that will be of no effect. Those who buy and sell in rapid succession don't need tax breaks.
No doubt the market will hesitate as its digest the news but given a few weeks or a month or two,it will be business as usual.
In the meantime the tinkering around the edges to help the homeless or First Home Buyers will be of limited effect as prices continue their relentless rise. Be prepared for a Winter of Discontent.
You are of course assuming this outcome based on prices continuing to rise. That is not a given. So what is your theory in an environment where house prices stall (or decline) and the inability to deduct interests means tax is being paid on a property that is making losses as well as declining in value?
If rents go up 20% that will have a significant impact on CPI, which in turn should see the OCR go up, which in turn will mean more non-deductable interest to pay on your landlord mortgage.
I.e. pushing rents up now will actually be bad for the landlord, not good.
Yes and if mortgage rates rise, the discount rate applied to future cash flows increases, and the asset becomes less valuable. i.e. capital value falls as well. Double whammy....more expensive to service and falling in capital value. It means houses become cheaper, meaning they are more affordable for FHB's, which means less people requiring rentals, which means less demand, which means serious issues for landlords to push rents higher.
There is a big difference between the very wealthy operator who has the means to arrange their affairs more efficiently and the Mom and Dad 'property investor' who are the patsy in the whole equation because of the sheer number of them. Decades of property spruiking seminars is what has caused the imbalance. The spruikers don't have to consume the product and the ones that do end up camping on roundabouts.
the banks willbe glad this monring they only removed the LVR's for 7 months - becasue the interest deductibility has a potential "market impact" given it looks like been retrospective. Those investors with multiple properties on interest only loans - now have a problem if they cant deduct tax.
The average tax bill on a $600 rental (with no interest deductibility) will be $10 000 or $200 a week - if they cant lift rents and dont have that much disposable income then they will need to sell the property.
If there are enough investors in this position then the market will suddenly no longer have a supply problem and unless there are the buyers for those houses then you can guarantee prices will slide.
The upside is the government should be awash with tax revenue shortly.
DID MENTIONED THAT WILL NOT TOUCH INTERESTONLY LOAN AND DTI OR TO DELAY AND AVOID WILL PASS IT ON TO RBNZ FOR FURTHER STUDY.......... study..... How long.....
Jenee should ask them how long do tbey need........ Put a timeframe... Will not as is just to fool people.
RBNZ restrictions of bank lending still being worked through
The Reserve Bank will report back to the Government on the possible introduction of debt-to-income ratio restrictions and restrictions on interest-only mortgages in May.
What would have actually made a difference is left out ;
"The Reserve Bank will report back to the Government on the possible introduction of debt-to-income ratio restrictions and restrictions on interest-only mortgages in May."
Jenee Should ask them the question and not let government get away with a circus as displayed today :
Fine trying to delay buy why has no one asked Jacinda when will reserve bank get back to government - time limit so can be held accountable.
If anyone did ask and I missed can you please update in comment or did Jacinda Arden and her team managed to get away with real solution as have no intent.
The taboo subject of immigration was not even mentioned. I guess we are happy to have to build about 25 000 houses a year for migrants before we even start doing something to assist our own people. So if we build 25 000 houses or less every year we will go backwards and the situation will only worsen, unless of course they wake up to the fact that continuing with policies that mean we need 25 000 extra houses for non NZers is a huge part of the problem, a bigger problem than not having enough doctors and nurses. And if we do need the odd skilled worker it is important to import the ones that are single and remove the right for them to get others into NZ through the back door. It is not in the interests of NZ for one skilled worker moving here to mean 4 or 5 migrants needing housing in NZ within a few years. We have to care about kiwis more than migrant "rights".
And where was the removal of interest only loans, something greedy investors have wielded like a club for far too long. The new announcements are a good start and I hope they are phased in rapidly but without addressing immigration nothing else really matters.
Jacinda is doing exactly what Trudeau did to Canada ie pretending to champion the oppressed while overseeing a system that does everything to ensure the rich get richer and the poor can never be part of an inclusive society. If you are not a business or property owner in Canada your dreams have been crushed and NZ is well on the way to crushing the dreams of all young non property owning kiwis as well.
karl You are 100% spot on. Adern seems like a socialist but her stance on immigration, although it is beneficial for the migrants who come in from the developing world, is detrimental to the poorer people in NZ, particularly Maori. The mass migration has suppressed wages, and caused problems in housing, medical care and schooling. I read the article yesterday of the Wellington woman who has bought an old bus for her and her son to live in, showering at the local swimming pool. Keys and English were always going to look after the rich. That is in their DNA. But Adern continued with the mass immigration until covid so has lost her moral compass.
The comments responding to this article confirm my worst suspicions: speculators and landlords are some of the greedist and nastiest people you would ever have the misfortune to meet. The sense of entitlement to earn massive capital gains + charge nosebleed rents is staggering. Just remember: you owe it all to an accident of history - without the GFC and consequent QE and lowest interest rates in history, you wouldn't have made these unreal gains. No other generation has been as fotunate as the boomers.
Tax their gain then. Your dislike of PIs have impaired your logic and fairness. Your beef with PIs relates to their gains. Not rental income. The solution is CGT and common sense, reasonable taxing of rental income based on their actual net income (which is rent minus all related expenses including interest).
Get this. All costs of doing business ultimately get passed onto the consumer. This Govt has just made it more expensive to offer rental property. I don't believe they've thought this one through. Which is likely to lead to increased homelessness. None of us think that is good. Perhaps you should take your concerns to the Govt.
That is not entirely correct. My neighbour bought a house in the 70s for $20,000. He now rents it out for $400 a week. His rent is not based on costs but on what the market will bear. If the supply demand imbalance reverses and market rents start falling then landlords will reduce their rents, regardless of their costs, unless they want an empty house.
Dave...so as interest rates have dropped recently costs for (nearly all) investors have dropped as well. How many have we seen reduce rents as their costs have dropped? Putting a rent freeze in place would probably have the biggest positive effect on Maori than anything else.
Exactly - the 'costs go to the consumer' argument when it comes to rental properties is such BS because if true, and it was a free/competitive/non fixed market, rents should have been dropping significantly inline with falls in the OCR.
So landlords want to have their cake and eat it too. You can't have it both ways....unless of course you're a property investor. But it just makes the whole housing market look even more like an unsustainable rort that is going to have such detrimental financial and social impacts in the future.
Agree, would like to see income assessment of Super too... As much as the retired like to say 'they earnt it', in reality its millennials with student loans who cant afford houses who are paying. I don't want to pay my hard earned income to boomers with multiple properties, when I can't afford the roof over my own my head.
Aaaah boomers. First living in the boom and expansion times after war. Then being able to buy house on single income while their wife looked after the kids at home. Free education. Retiring at sixty because they work so hard (and nobody else does right?) Then buy up all the property from underneath younger generation because they deserve it (remember they worked hard and nobody else does). Then whole society needs to shut down, businesses, schools, livelihoods because they are vulnerable lot.
Only if there was some sort of a virus that targets older folk... Hang on a minute...
I did predict they will increase first home grant. All this does is it pushes prices up and this has been proven here and overseas. These guys are bunch of clowns and deserve treatment I cannot mention here or I'll be banned for life. You do know what I'm talking about though?
Did mention that will play with time to delay and avoid.
Now Mr Orr if he really wants to throw the government in a situation, should get back to them in a week or two and see how the Queen reacts or should say what excuse will she find to avoid or delay.
Full confidence that will find an excuse or reason as now master in manipulating and fibbing.
Underwhelmed. No retrospective action. The landed gentry will stay the landed gentry and move on to new builds. The tax thing will get watered down in the wrangling. Lots of noise but blanks fired.. Reserve bank statement only in May...property will be up another 10% by then.
Next sensible steps after the impacts of interest deductibility have been measured:
Remove cross collateralization of LVRs for residential properties.
Remove owner personal income from DTI calcs.
This small move already puts the many 'mum and dad retirement nest egg property academies' pretty much out of business.
Landlords say we will just push rents up 20% to cover these costs. But because rent is included in CPI this will result in higher measured inflation and therefore OCR, which will increase mortgage rates and now non-deductable interest costs even more, making property investment even less attractive with higher interest rates.
Are you sure you want to shoot yourself in the foot?
you cannot be increasing rents ad nauseam because banks won't give you mortgage for rent money
Rental income is considered in mortgage applications, but they don't always take 100% of it, and need extra documentation such as a rental appraisal and/or rental offer from potential tenants.
If they were addressing the ignition source, then you have to increase supply relative to demand.
To stop this ignition you either have to stop feeding the fire and let it slowly burn out, or you take action to extinguish the fire.
However, to date the Govt. does not know the difference between extinguish/decelerant, and accelerant. Are they pouring water or petrol on this fire?
So looking at their last ideas, we just need to look at what effect they will have on relative supply/demand.
Brightline test extended from five to 10 years.
If the timing of selling is not urgent then you will hold longer, so fewer properties for sale.
If you had to sell then no difference but you pay tax, Govt. gets revenue.
The immediate effect of changes so cannot rush to market and increase stock volumes.
The net effect is less supply so an accelerant to price increases.
Interest Deductibility loophole removed.
Interest cost as an amount of debt is low but will affect some investors. Given investors have to have such a high deposit, and interest rates are low, then most properties should be able to absorb this. And new properties are exempt. This is an issue, because most new property is built on the fringe, and the fringe sets the price for all pricing going back in. Any extra supply restrictions caused by extra demand on the fringe will cause price increases all the way back in. It also encourages new builds over deep renovations and does not give much incentive for renovating existing rentals. This should encourage these to go on the market for FHBs, or developers to demolish a perfectly good reno to increase density. Legislation yet to be set.
Some small pluses but big minuses, so still adding to a net less supply, an accelerant to price increases.
Price and Income Gaps on First Home Products Lifted.
This is an easy one. Savings, which this equates to, will always flow to the most restrictive part of the system, ie within one build cycle or less expect prices of land, and the house that will eventually be built on them, to rise by the extra increase in the grant, ie $10,000, or more likely the leveraged borrowing multiple that represents ie $50,000 to $60,000.
Price gaps lifted to enable house prices to rise to absorb this free money.
Increases demand relative to supply so an accelerant to price increases.
3.8 Billion Housing Acceleration Fund.
Has no relevance to increasing supply in the short term and is focused on the wrong areas of the country. I will make it easier for regional NZ as a supply vent to open up more affordable housing rather than encourage and reward the bad behavior of the larger metropolitan areas.
Since they are not increasing total supply, they must be trying to reduce the number of speculators in the market, giving less competition for FHB for what is available.
Can't see it.
They should have leveled the playing field, not by taxing even more (no interest deductibility ) - they should have make interest deductible for everyone including owner occupiers - This wouldn't push rent up and it would help PAYE people have more to spend and thus more money in the economy.
ld... there is no way around it. We need to freeze rents. Ever increasing rents is seeping through our whole society and causing more damage than the meth epidemic. No rent increases for 5 years and no interest only loans needed to be part of todays announcements otherwise you are right, they may have an opposite effect to the one intended. Hopefully they will add these two things shortly so the changes have the desired effect.
Still nothing 'Courageous" or, the PM willing to spend her political capitale.Even if she was brave enough to break her promise over her dead body and introduced a new tax! CGT! Or a Stamp Duty on 2nd and 3rd,4th houses, or land banking rules where developers sit on the property to reap the long term capital gain! Oh but no. Give the seller a subsidy, handout by increasing the new buyers grant which will go straight into the sellers pocket and increase prices a little more.
Ceasing the ability for deductions has been a long time coming, but I'm guessing there are a lot of creative accountants out there who have already been thinking about this scenario playing out.
Remember, the investor market is holding the 'keys', they own all of the houses already and just might lock them up for the long term capital gain.
I previously assumed bright line only applied to properties that earned rental income. Interesting re "Main House" - does that mean all the people printing money by selling up their beach home in Omaha will be caught too? And the politicians that own apartments in Wellington to use during their stay there? Probably makes sense as if rental income was a prerequisite many people would just lock up their properties
And for FHB buyers buying a do-up or any owner wanting to renovate. All the benefits go to building new. NZ has so many houses that would benefit from a deep renovation.
Not a very sustainable and Climate-friendly policy to actively encourage new builds, and penalize renovations and recycling.
This Labour Govt, under Jacinda Ardern, doesn't understand that all costs get passed onto the consumer. Removing interest rate claims will increase rents across NZ. And if interest rates begin to rise, they'll go up even more. Ultimately this policy will increase homelessness. I really hope someone can explain this to the Govt. In a manner in which they can understand.
And that is $50 not being spent in the 'real economy' where we produce actual productive goods and services. Which in turn will impact the profitability of other business, which in turn will impact employment and wages, which in turn will impact peoples ability to pay more rent.
So just to clarify Dave - that you were dropping rents while interest rates were falling because it became easier to service the mortgage (yeah right).
Its a bit rich then to say that rents will have to increase because mortgage rates rise. You've creamed it with interest rates falling. Now its time to share the love. Kia kaha.
I wasn’t dropping the rent but haven’t increased it either. It is slightly cashflow positive but not much. My interest rates have not fallen as much as you might think as they were fixed over the last 18mths. I probably missed the boat on that. The rent was set 4.5 years ago at the bottom of the market estimate and has stayed there since. That is a good deal for the tenants.
So, just thinking through the interest deductibility example.
$1.25m property with $1m mortgage at 2.5% interest only, rented out at $700/week
Status quo:
Income = $36,400
Mortgage Expenses = -$25,000
Other expenses e.g. maintenance, letting fees etc = -$5,000
Profit = $6,400
Tax at 33% = $2,112
After tax profit = $4,288
After Change:
Income = $36,400
Other expenses e.g. maintenance = -$5,000
Profit (excluding mortgage expenses) = $31,400
Tax at 33% = $10,362
After tax profit (including mortgage expenses) = -$3,962
So in this case, the landlord needs to find and extra $8,250 a year for tax.
Watch for the rental squeeze now... it will get passed on
Brightline is not likely to be an issue, the big issue is the deductibility of interest which is the no.1 cost for investors
Hopefully when the next election comes around we will see if this was a successful plan or backfired - and possibly unwound by National as all other businesses deduct interest costs as a normal expense
It's going to create a lot of ammunition for National to throw around
yup, because the majority of new zealanders are property investors right? Oh wait, no that figure is more like 10%.
Here is the problem with your theory, 60% of people believe our housing crisis is the number 1 issue in the country. Fixing it will win a lot more votes than it loses.
I read interest.co.nz more for comments as some are genuinely good.
I agree that this government has failed and no one grilled government on delay on DTI and Interest Only loan as they should be held accountable along with RBNZ.
Today's announcement is failure except tax change, which is over all good but if government really wanted some meaningfull result should have gone fast and hard on DTI ( It also protect FHB from making wrong decession under FOMO) and on interest only loan as 41% investors who are on interest only loan are 100% speculators and one of the main reason of this ever rising house price at unheard peace.
Still not all is lost as is still on the cart and if better sense prevail, government can speed up action on Interest only and DTI soon or may be, they have delayed as among them had difference of opinion but Jacinda Arden, if in favour should speed it up as it is her where the bucks stop and will do a great justice for generation to come by being a Leader and acting hard and fast.
Only feedback, NZ has lot of politicians and experts but need a leader.
Currently many Nz listed companies benefit significantly from the interest deductibility- Auckland airport, all the listed REIT’s, all the rest home providers, ports of Tauranga etc. Will be interesting to note the impact on their share price and consequently KiwiSaver funds as a consequence of this announcement. Can’t help but think there will be a number of unintended consequences......
No. The logic to this is that when it comes to putting in an offer on a house (eg, at an auction), property investors can pay more for the same house because their holding costs are reduced compared to owner-occupiers. This results in investors bidding the prices of houses up, and locking FHBs out of the market due to spiralling prices.
Disallowing interest expenses effectively increases landlords interest rate by their marginal tax rate. I.e. if an owner-occupier is paying 3% at present, the landlord effective interest rate is about 4%. In a low interest rate environment, and with expected future capital gains in excess of 4%, this is not a big deal. Will it deter landlords from buying existing houses? It also reduces their leveraging ability very slightly but is very unlikely to affect it in a meaningful way. For this policy to have an impact you will need to have:
1) higher interest rate, the higher the worse.
2) sticky rents
3) No CG prospect.
4) investment alternatives that offer better returns.
The only one we have at present is sticky rents.
I am not, the cash flow impact is 1% increase in your interest rate. If you are not in a negative cash flow at present, increasing your interest rate by 1% is unlikely to do that for majority of people. Only those with 100% debt at higher interest rate with very low rental incomes will be in negative cash flow territory.
I think DTI and IO restrictions will be next. It's clear the government is also now opening talking about this as a housing bubble. Reducing exposure to highly leveraged risky speculators is a must if you dont' want things to go "pop" in a dramatic way when global or macroeconomic changes occur.
I know how they used to manage some of this (obviously can't say too much) but the short answer was, it wasn't managed very well. They've tried to up the game but only time will tell. Not like it's a hard thing to do given all the sales data comes from Core Logic.
Fake economy. Fake money. Increase interest rates and stop devaluing the NZ fiat currency units.
Listening to Jacinda and Grant talk about those nasty 'speculators' reminds me of former US President Nixon's speech in 1971. He used the same language when he 'temporarily' closed the gold-exchange window. Those nasty 'speculators', not the failing government policies that created the asset price inflation and consumer price inflation in the first place as they bow at the altar of Keynesian economics and MMT.
Changes to Uk buy to let (investor ) interest expense tax deductions explained. see attached link NZ govt will more than likely follow a similar path . Interestedly uk house prices have increased since the changes were introduced.
https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental…
I thought the price cap was $600k for existing and $650,000 for new build in Auckland so am unsure where $625k came from and are the new caps for existing and new regardless?
This could impact how banks scale back rent from 70-80% to 50-60% as rent less rates and insurance leaves a bigger portion of rent to now be taxable income and create a tax liability for gross rent rather than net rent.
Removing deductability of interest for Residential investors is very bold not to say huge. Be interesting to see what the effects are but I suspect it will take investors out of the market apart from those who can pay cash. It will force investors towards new builds which should increase housing supply. That is what the government seems to want but the long term and short term implications could be terrible for renters.
In the short term rents will rise. Landlords who have held property for a number of years have seen their interest costs fall by 2/3 or more and have not been driven to increase rents as much as they could in a market very short of rental accommodation. That will change now as landlords effective cost of borrowing climbs and the supply of rentals falls further.
In the long term the supply of rentals will continue to decrease, which is clearly what the government wants. House prices are likely to level off or fall a bit short term but the fundamental problem is lack of supply and taxing the pricvate sector out od providing accommodation does not seem like a good way to fix that.
This Labour Govetnment takes the credit of being 'Master Of Announcement"
Announce that RBNZ will come back to thm with/on DTI and Interest Only Loan.... Than will have another announcement.
Well What wereyou both doing till now if not consulting each other and what are you waiting for as all data and situation is in front of you to decide.
In this age and time, one does not need months and years for communication UNLESS HAVE ULTERIOR VESTED BIASED MOTIVE THAT JACINDA AND MR ROBERTSON IS PURSUING OR DEFLECTING.
It would be crazy for the government not to cash in on the current year given how much money has been loaned to investors this tax year.
If it is to be retrospective to 27th March 2021, even when does get introduced, surely investors potentially could get hit by a 25% tax bill for the current year and then apply the 50% to the March 2022 tax year.
Maybe it's wishful thinking.
Any politician that does not admit that to fix the problem prices need to come down is being dishonest. A correction is the start of fixing the problem, and will be tough but it has to be done. That is transformation.
If you dont want these painful outcomes in future you must be proactive. Create policy for the reality, not the fudge that has been pedalled by the media. Foreign buyers have always been higher than 3%, investors have always had a tax ramp giving them advantages. Inflation is not less than 2%... but is the basis of the interest rate calculation... Stop fudging reality and you may get some decent outcomes.
If you have a brain tumour the size of golf ball but you treat it as if it is the size of a pea...you are going to get some pretty lousy results.
Im thinking they will use the fine detail of the UK model.
In the UK individual investors could not deduct interest expenses, but Companies can.
I'm almost 60% sure this will also come to be, in NZ.... ie.. Id bet on it
Because of this, it wont be too difficult to game the rules.. ie . set up a company structure.
As usual... the soft under belly are the small mom and pop property investors who might have only 1 rental property, as well as the family home. ( more than likely, they are the ones that are conservative in the rents they charge... maybe )
Anecdotally ...I think this is what happened in the UK ( I have not done the research..so dont know for sure )
I'm guessing a few of them will sell..
Corporate style investors will be able to outbid individual investors, simply on the Tax treatment disparity of interest deductions... ??
https://www.thisismoney.co.uk/money/bills/article-8007213/Has-George-Os…
Yada, yada, yada, yada...
"Politics of envy" just as much as property investors in politics engineering policy so young working folk pay the taxes while they enjoy tax-free income from capital gains. Theirs is politics of envy in that they lucked into affordable housing at a young age but lack the skills and knowledge the young kids have to compete in the modern knowledge economy.
If it's envy one way, it's envy the other.
Perhaps govt has opted for the phase out of interest-deductibility as it will have an insidious effect as opposed to a stamp duty or other blunt instrument,ie it may take a little longer for changes to pervade the behavior of investors and prevent massive sell-off
Perhaps govt has opted for the phase out of interest-deductibility as it will have an insidious effect as opposed to a stamp duty or other blunt instrument,ie it may take a little longer for changes to pervade the behavior of investors and prevent massive sell-off
Things are slowly changing for housing in NZ but like an oil tanker, changing course takes time…
Here are the main factors for these changes in order of importance;
1) Interest rates have stopped dropping and are expected to rise in 2022 driven by international rates
2) 40% LVR restrictions for investors in May
3) Removal of interest tax deductibility for investors
4) More houses being built than in a long time
5) Fewer immigration into NZ
6) Affordability being reached due to high house prices
7) Extension of bright line test to 10 years
Against this trend, we still have a reserve bank that is doing all it can to flood the market with cash and keep interest rates low (LASP, FLP, OCR)
That's a good overview. A few other things to add in no particular order:
8) continuing drag of high debt load
Against the trend:
9) over time further economic improvements globally (return of tourism etc).
I think the biggest pending question is do these changing conditions impact people's projections on capital growth over the coming years? That is definitely been hard wired into the NZ psyche for a lot time. However once it starts shifting it can move a lot faster than an oil tanker.
I wonder what Number NZ has.....in the TOP Percentage.
https://www.zerohedge.com/personal-finance/richest-1-americans-hiding-2…
You watch and see how many houses now become empty and stay that way.
Losing the interest deduction will mean some who have plenty of cash will empty out their houses. lock them up and wait till they get around to selling them.
Happens oversea's so why would it not happen here?
and when someone buys a 3 million house on the northern beaches do you think they are broke?
They buy at that price because there is a competition between buyers.
Not so much at 500,000. They are the ones who are mortgaged to the hilt.
To little to late, this horse bolted years ago, investment property usually cycles around a 10 year cycle investors will only hold onto property longer now which will exempt them from the Brightline tax, houses that could possibly be brought to the market after 5 years now will be held onto for longer then 10 years reducing the house numbers potentially to go to market. Unfortunately another policy that will benefit no one other then the government for the tax grab.
Grant Robertson uses emotive language like “loophole” to sell his argument about the legitimacy of claiming interest expense for a rental property business. He is not calling it a “loophole” for any other type of business. He is suggesting a rental property business has been taking advantage of this loophole. Absolute rubbish. It is a well accepted principle in business all over the world that interest expense is a legitimate expense for any business. Grant Robertson has created 2 types of business now and while accountants will benefit it will create more distortion in the market & this will result in unintended consequences & a very inefficient system
I think we all recognised that something needed to be done but the Govt had conducted these changes without proper thought and finesse. Suddenly the average property investor is now a speculator and what amounts to a proper deduction against income now becomes a 'loophole needing to be closed'. So what about normal bona fide property investment companies? how will changes affect them?
The Gov't have suggested that they took the idea on the withdrawal of interest deductibility over 4 years from UK. This is not quite the TRUTH. The UK withrew higher rate tax relief not ALL tax relief which is what the Gov't are doing. One aspect to me is conflicting. We are discouraging those Kiwi investors buying second hand properties but encouraging them instead to buy new. Demand for new builds will inevitably increase with investors competing even more with first time buyers.
If interest only loans are stopped this could have a massive cash flow problem for some higher leveraged investors. I dare say over time they could end up paying tax on overall losses.
I have no problem with a CGT with exemptions and reliefs, infact it would be a lot fairer than treating anyone who doesn't hold on to their asset for 10 years as an evil speculator who needs taxing at 100%. At the end of the day the Gov't has again escaped a bullet. They blamed foreign buyers , now investors but never themselves with a pathetic affordable Kiwi home achievment. Did they not think that some of the 100,000 returning Kiwis fro abroad needed a home?
So why not allow first time buyers borrow 90% like most other western countries. Impose a stamp duty for second home purchasers .... on a sliding scale . ore homes the higher the duty... Most property investors are not evil as the Gov't make out and do provide a home for those who cannot afford to rent.
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