Residential property investors have a narrow window of opportunity to purchase new properties that won't be subject to the extended five year bright line capital gains tax the government is introducing, but those who are offsetting losses from their existing properties against other income had better start working on plan B.
In an extended video interview with interest.co.nz, Housing and Urban Development Minister Phil Twyford outlined the state of play of the new Labour-led Government's plans for housing industry reform.
He said extending the bright line test so that residential investment properties would be taxed on any capital gains if they're were sold within five years of purchase did not require a change of legislation, which meant it could be introduced reasonably quickly.
But it would not be retrospective.
Twyford said the extended bright line test would only apply to properties purchased after the date on which the regulations changed, and the existing two year test would continue to apply to properties purchased under the existing rule.
This means most properties purchased now would be unlikely to be taxed on any capital gains if they are not sold for at least two years.
Twyford also confirmed that although investors would be taxed on capital gains if they sold within five years, any capital losses that arose if they sold at a lower price than they purchased for, would not be tax deductible.
That means that if the market goes in to a downturn and investors take a hit, they must wear the full extent of those losses.
But investors hoping to beat the new rule had better get their skates on.
The window of opportunity that exists before the rules are changed is not expected to remain open for long.
However investors currently offsetting losses from residential investment properties against other income would not be so lucky.
Once the new regulations ring fencing tax losses were introduced, they would apply to all residential property investments regardless of when they were purchased.
So investors who are currently offsetting losses from rental properties against other income such as wages or salaries, had better start working on plan B.
Twyford also outlined his plans for the new Affordable Housing Authority, which will operate along the lines of an urban development authority with compulsory acquisition powers, although he maintained those powers would be used sparingly.
"I don't anticipate the Authority will use those [compulsory acquisition] powers with any kind of frequency," he said.
"You'd only use it in extreme cases where there was a holdout gaming the planning laws to make a windfall profit and essentially blocking a major development in the process."
Twyford said the Authority would have powers enabling it to cut through red tape and vested interests to enable large scale development projects to take place.
And it would likely be run by people from the private sector.
"We want to staff it with people who understand development, who understand property and are used to doing those big projects," he said.
"We don’t want to staff it full of policy analysts from the Ministry.
"It's got to have people who really have that commercial experience."
The Authority would work with private sector developers and possibly iwi-based groups and spearhead the government's plans to build 100,000 affordable homes over 10 years, with half of them in Auckland.
Twyford also reconfirmed the price targets for affordable homes in Auckland that Labour used in its election policies, to have apartments and townhouses available for under $500,000 and standalone houses available for $500,000 to $600,000.
"They are stretched targets and it will be tough to meet them, but that what's we intend to do," he said.
He also said that the scale of the government's house building plans could see a greater involvement by overseas companies in this country's residential property development market.
"We are going to be building so much, there are going to be opportunities for New Zealand companies, but we are not averse to the idea of overseas companies that are used to working at scale, coming in and acting as a disrupter and I think possibly shaking up and improving some of the supply efficiencies and doing some of these big projects," he said.
"And by tendering construction work at scale, at say thousands of homes with multi-year contracts, companies will be able to scale up and invest in offsite manufacturing - build factories that can build quality homes at a more affordable cost."
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