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Interest deductibility rules for property investors detailed; 'New builds' to be exempt for 20 years

Property
Interest deductibility rules for property investors detailed; 'New builds' to be exempt for 20 years

The Government has defined what it proposes will constitute a “new build” to be exempt from a major law change that prevents residential property investors from deducting interest as an expense when paying tax.

The Government proposes a property be considered “new” for 20 years from the time its code of compliance certificate is issued.

It proposes the exemption applies to properties that received this certificate on or after March 27, 2020, and the exemption applies to both the initial purchaser of the new build and any subsequent owner within the 20-year period.  

It also proposes prefabricated houses and the conversion of existing dwellings into multiples dwellings be considered "new builds". 

The Government is seeking feedback on whether the 20-year "new build" period should be extended for purpose-built rentals.

The removal of interest deductibility means that from October 1, 2021, interest will not be deductible for residential property acquired on or after March 27, 2021. For properties acquired before March 27, 2021, investors’ abilities to deduct interest will be phased out between October 1, 2021 and March 31, 2025.

Inland Revenue estimates the change will generate $80 million of tax revenue in the 2022 fiscal year, $200 million in 2023, $350 million in 2024, $490 million in 2025 and $650 million in 2026. 

The Government in March announced the rule change. However, the change is only expected to be passed into law in early 2022. So, any details unveiled to date could technically be changed before then. 

The rule change is set out in a Supplementary Order Paper (SOP) connected to a tax bill that’s just had its first reading in Parliament. 

The SOP will go through the full select committee process, so the public will have an opportunity to provide feedback on it.

National and ACT have committed to reversing the change if elected into government. 

More on what's in and what's out

Property rented out some of the time, including holiday homes, will be affected by the rule change.  

Types of property exempt from the rules include:

  • the main home, even if part of the main home is rented out to a flatmate or boarder,
  • farmland,
  • commercial accommodation (hotels, motels, hostels, but not short-stay accommodation provided in a residential dwelling),
  • certain Māori land,
  • emergency, transitional, social and council housing,
  • care facilities, retirement villages and rest homes,
  • employee accommodation,
  • student accommodation,
  • land outside of New Zealand.

Inland Revenue also said: "It is proposed that the interest limitation rules will not apply to most companies where their core business does not involve residential land. These are companies where residential property (including new builds) makes up less than half their total assets.

"Companies where five or fewer individuals or trustees own 50% or more of the company (referred to as close companies) will generally have to apply the rules even if their core business does not involve residential land. An exception is proposed for close companies that are Māori authorities or wholly-owned by a Māori authority."

See an easy-to-read facts sheet compiled by Inland Revenue here. See the SOP here

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

154 Comments

The unintended consequence - increase demand for off the plan and new builds = higher prices. Good news if you have bought is "new build" recently.

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2

But isn't that what we want to incentivize?  Investment into new stock rather than people leveraging up to buy existing property, displacing future generations at a chance of an affordable start at home ownership while claiming all the expenses that go with "running a business".  

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19

yes, but there is always unintended consequences, and it will increase the price of new builds as investors pivot so classic supply and demand will force prices up

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7

But what will happen to the price of all the "old builds" that the investors no longer want?

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5

Wouldn’t it be terrible if they dropped and the people who lived there could afford to buy them.

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20

If investors already own them, there's no incentive to sell them.

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4

He asked what happened to the old builds investors no longer want. So their intention to sell was his premise.

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6

Investors have no reason to not want them though, it's a flawed starting point. Why sell an appreciating asset when you can just tap the every increasing equity if you want to finance a new build? 

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4

...ummmmmmmmmmmmmm it might not be an appreciating asset. 

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7

So... I'd sell an existing build to get out of it and into a new build in a declining market? With all the supply issues and volatility in prices that would come with the construction time frame? Why would I even be investing in a new build to take advantage of an interest deduction if the value of the underlying asset was going backwards? 

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5

Your logic seems don't add up well. We all know because of this, the new builds will become more popular for investors and that makes existing dwelling less attractive, which result in less demand for the existing dwelling causing existing dwelling assets depreciate.

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3

No, we don't know it. That's the point. There is little reason for the price of existing dwellings to drop if there's enough of a demand for housing to require new builds in the first place, and there's no incentive for investors who already own dwellings to sell them if the underlying value keeps increasing. 

Either there is a shortage, or there isn't.

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8

"Either there is a shortage, or there isn't" It's a working in progress, the tide can change fairly quickly in terms of assets appreciation or depreciation with this new rule in place. This means the demand by investors will push more new builds up and more expensive. Less demand on existing dwellings, as time goes, the value of existing dwelling eventually comes down and depreciate. Investors will start selling off existing dwellings as it's not worth for them to hold them with all those increased cost involved. 

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2

And how do you do a new build? You buy an existing property, knock it down and put up 5. I expect existing houses that can be intensified will stay in high demand, older houses that can't be will reduce in price (unless they can be renovated to become multiple dwellings).

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3

The existing house's value won't go down that much as the price of the land it is on will go up and up. The land value is the largest proportion of Auckland house prices. 

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3

If it's on enough land it falls under being able to be knocked down and multiple built...

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1

No it depends upon the town planning zone, THAB, single house etc

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0

I think you are talking about land bank investors here. Most of those investors are not looking for rental yield but capital gain. And also existing dwellings are not all with land. Even some are with land but location and the development of that area also holds key part of the value. For those existing town houses, terrace Houses or apartments, the value will slowly drop.

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3

What rastus said.

in four years this change will significantly impact the return on owning a property so it would be pretty crazy if the price didn’t change in response.

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"If investors already own them, there's no incentive to sell them."

what am i missing?  The investor sells to buy a new build, because on a new build she can deduct interest and increase their profits.

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1

Looking around at new builds and their asking price and lining this up with the kiwi wage, I don't see how there will be any profit in buying a new build. - especially with a tenant who will depreciate that flash new interior in record time.

Or do we really think the rockstar economy is all set to pay higher wages?

 

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5

It already is; unemployment is low and wages are rapidly rising. On top of that the minimum wage is now $20 an hour. 

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1

The same could be said looking around at old builds, their asking price and lining this up with the kiwi wage.

All else being equal, there will be more profit (or less loss) in selling existing rental properties and replacing them with new-builds.

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2

So the investor no longer get interest deductability so increases rent to cover and holds property until brightline period  ends or is changed by a sensible Govt and FHB compete with investors for new builds - so Labour have at a stroke completely screwed some FHBs?

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11

For long term, I don't think would be the case as this encourage more new builds that funded by investors, as new builds are more attractive property investment. This means more supply in the market less demand for existing dwelling from investors, existing dwelling's price will slowly come down. It will be easier for FHB to buy existing dwellings. New builds will be more expensive. 

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1

Only true if you expect labour to win another 3 or more terms. If you suspect that the tiles will be revised, why not hold whilst taking a wait and see approach.

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0

It doesn't matter who is in power, this has to be dealt with. Otherwise why do you think China wants to risk millions of job opportunities and to let Evergrande fall?

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2

If an investor owns a non-new home that is let, there are two scenarios.

1) It was purchased more recently and is subject to bright line tax on recent capital gains. Don't sell yet, wait it out and avoid a substantial tax bill even if tax deductibility is taken in to account.

2) It was purchased pre bright line in which case given the drop in interest rates since that time (4-5%) and larger capital gains they probably have a reasonable yield. I'd pivot and borrow based on the equity but would bias as much of the loan to a new build that qualifies for the tax break. Don't sell.

Those selling now I suspect believe the market will change naturally and stagnate or decline, or that the appetite the government has shown to influence the market makes it an uncertain future. Both are pivoting away from real estate as an investment vehicle. Those are happening for sure but I suspect not nearly in the numbers needed to change the market. The release valve on taxation around new housing along with JA's statement outlining a wish for house prices to continue to rise but more slowly has likely diluted what little value these changes might have had. 

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2

If theres a rush into new builds by investors and owner occupiers then prices must surely rise. Existing homes at current prices will look cheap or fair value, relatively

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The problem is I think that unless a comparable existing home is half the price of a new build, a FHB won't be able to buy it as no-one will give them the money. However, as far as I'm aware, the 40% LVR rule applies for investors buying both new builds and existing properties. Take a new build and a comparable existing house, both of which cost the average amount (say 800k) and can be rented for the average price (lets say $600 a week). For the existing house, the investor will have a mortgage of 480k, which (according to ASB) will cost them $344k in interest at 4% over 30 years, If I understand the new rule right, not being able to write that off means they are on the hook for an extra $134000 in tax (at 39%) over the life of the loan, compared to if they bought a new build. 

So if the existing house which can be rented for $600 drops by 150k relative to the comparable new build, it's now a good option for the investor. But it doesn't matter to the FHB if they can get the same kind of house for 150k less by buying an existing rather than the new build - because they'd need $130000 as a deposit to actually be allowed to buy it, but they only need an 80k deposit for a new build. Even if the prices of existing homes drop, it's hard to see how this will help out FHB much. 

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as far as I'm aware, the 40% LVR rule applies for investors buying both new builds and existing properties.

No it's just for existing properties.

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0

Provided they can be demolished and townhouses can be put on site... prices go up. 

It'll be older houses that can't be knocked down for townhouses that become less desirable. 

So FHB get to live in old houses on small sites that they can't afford to fix.

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6

Exactly. This happened in Hong Kong or Taiwan, I forget. Rents were fixed for existing dwellings, uncapped for new dwellings. Landlords knocked down their less profitable buildings and built new, uncapped rent ones. Not a perfect match, but the effect is the same - what we're seeing happen in Te Atatu will get to crazy levels. The incentive is to knock down existing dwellings

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3

Not just Te Atatu, drive down almost any street on the North Shore and there is a house thats been knocked down and a bunch of townhouses are going up.

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3

I doubt anyone will knock down one and replace with one, its more like 10 these days. So I sure hope you are right and that happens, because anyone who doesn't think prices will go down if supply rapidly increases needs to go back to school. 

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4

The problem is the time it takes to increase the supply. This change will increase the desirability of knocking down one house and putting up 5. But does nothing to address the lack of infrastructure, Council red tape, material shortages and labor shortages. 

The rate of house completion is at or very close to capacity. 

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2

Don't think it's that simple.

Supply has been surging last 2 years, that hasn't stopped crazy price rises.

 

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3

Further it's a self-reinforcing feedback loop. Higher prices lead to more building, and so on.

Things only crash if there is crazy overbuilding, that doesn't tend to happen it NZ because we don't have the systems in place to deliver housing quick enough.

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5

Pre-consented Prefab is on the up.  Build time is going to decrease dramatically and available supply will increase with it.

https://www.stuff.co.nz/life-style/homed/houses/300414338/kinga-ora-to-…

 

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HouseMouse - supply needed to surge for several years to catch up on undersupply, since GFC. We may well have got there by now. 

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hmm, I don't think 2 years would change much judging by how severe housing shortage issue we have, plus nothing had been done in terms of dealing with speculations from demand side.

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1

yeah. Apparently joe kiwi voted to import mass people so we could move from family homes into battery housing.

At some point this growth BS has to end and we will live with the popn we have.

The old fossils politicians who honour growth need to go.

And some thin ACT will fix this?? Good grief.

 

 

 

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9

The other question should be, what will happen to the price of the rents? 

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1

Property spruikers are already saying it will push rents up. But they are biased.

I think it should be pretty neutral. Sure, the removal of interest deductibility on existing houses might have an inflationary pressure, but that could easily be cancelled out if lots of investors start purchasing new townhouses, as that obviously helps to lift supply.    

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0

I think it’s a mistake to separate houses out into investments v non investments in price terms. If more houses are built, all prices will be affected. More supply decreases demand. I think it’s a dangerous policy which may lead to oversupply and an Ireland-style price crunch. Specific build-to-rents being exempt would been a better idea.

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1

Build to rent are large corporate landlords - shouldn't give then an advantage over smaller investors.  Bigger investors have the advantage of scale already which will give them lower build costs 

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0

I wonder what % of new builds investors are buying versus FHBs/owner occupiers?

Where we live, a 2 year old development with around 50 townhouses, only about 5 of them are owned by investors.

Are investors really enamoured with townhouses and apartments? They don't appreciate as much in value as a detached house on a piece of land.

Is a 4% yield enough with only moderate potential for value appreciation? Especially as interest rates rise.

 

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3

The data indicates that capital gains from houses vs townhouses is pretty similar and averaging approx 8% pa.

I could put $200,000 in the bank and get nothing in a year

I could put $200,000 in the sharemarket and get $14,000*

Or i could put $200,000 in housing and get $40,000*

 

*given average market conditions.

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2

Which data are you referring to?

My understanding has always been that townhouses on very small pieces of land appreciate significantly less than detached homes on decent sections.

For our townhouse, I have assumed that it has appreciated around 15% in the past year rather than 30%.

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https://www.opespartners.co.nz/investment/property-type

 

Even at 4% CG its better to be in housing than the stock market in NZ

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2

Great, thanks for that, good piece.

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0

Exactly. Drive new insulated double gazed build, and a disincentive on speculation on old houses. Yes new houses should command a premium, but the race to rinse income tax through property debt has made that not always the case.

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2

'Rinse' that is my new kupu o te wiki

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0

But new builds by definition increase supply which results in lower prices.

Seems better to have investors buying new builds rather than the alternative which is just buying up existing stock, supplying housing in the same way that scalpers provide concert tickets.

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5

The supply of new builds in is constrained by labour and materials. We just concentrated investor activity onto them. The market can't just magic new builds into air as demand increases. And as long as new builds are in short supply, there's little reason for price pressures to ease off on existing homes either.

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8

New builds do increase supply but not reduce price - lower demand or higher supply does that but now new builds appeal to investors more than previously so FHB have more competition.

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2

Not sure I understand your logic. Did you read it in an Ashley Church handbook?

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3

We all know it's the underbidder at auction that sets the price the purchaser pays, and so it is with housing. All that is needed is one less property than there is a buyer to dramatically increase the price.

The NZ property market has this baked into its methodology.

Plus what is overlooked is, the main underbidders are developers trying to buy land banked property, so this almost always starts off as a very high raw land price input, which sets a very high base price in the very beginning, even before it's sold into a market that is conditioned with FOMO.

This is all due and still is even with these latest Govt. changes, because of wrong underlying Govt. policies on land use.

Its is a perfect rentier extraction, like any good parasite that can extract enough from its host without killing them both. About the only thing more they could do is hold a gun to your head to see if they couldn't get a few more dollars from you.

There is nothing that I see in the latest Govt. measures that address the supply of affordable land and infrastructure. There are more restrictions in the system than I have ever seen, especially ones outside the control of even the NZ Govt, and with the number of properties sold off the plan up to 12+ months before the title, to both builders as sections and to individuals as sections or house and land packages, then I think on top of everything else, the parasite may have pushed the host too far this time, to the detriment of them both.

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5

Yep. New builds were attractive because in many cases they were cheaper than buying existing stock (I almost went there). So now FHB will have lots of competition in an area that could have been 'affordable' and must compete for existing, expensive, crappy stock. *slow clap*

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2

Definitely an unintended consequence.

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1

I don't quite understand your logic, new builds increase supply but not reduce the cost. However, price is another story. New builds will reduce the demand of owning houses as more rental houses flooding into the market driving down rent price. This will eventually drives down housing price as more supply and less demand.

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0

Increased demand = increased supply of new builds, and increased housing stock.

Meantime, reduced investor demand for existing housing gives owner occupiers a better chance and possibly reduces price.

I don't see anything wrong with that.

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7

Built in extra cost off sets tax disadvantages buying existing, running around in circles. Still better to buy quality existing homes rather than some of the “new built”.

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2

huh?

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0

Location, location, location.

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2

Only once a new equilibrium has been reached. 

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The unintended outcome is that it incentivises larger houses, not necessarily more houses, given the majority of new build buyers are (and always will be) owner-occupiers.

The tax incentive accrues to any capital improvements so the builder is incentivised to maximise floor area on a given plot of land. The effect is that houses become larger at the cost of more houses being built.

The incentive is not only an incentive for investors to build big houses, but also owner-occupiers given that the tax benefit is active for 20 years for successive owners.

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1

if the market don't want a bigger house then he aint gonna build em eh.

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1

But the majority of new build purchasers are owner-occupiers.

When faced with the question of maximising future value, the answer is to build a larger house as that is what offers the largest tax advantage - the owner-occupier is already incentivised to do this by lack of capital gins taxation. The new investor rules compounds this.

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1

Presumably it would encourage the demolition and replacement of dilapidated housing. This would be a good thing, but it might not ameliorate the housing situation.

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0

"The exemption will apply to properties that received this certificate on or after March 27, 2020" ? Or 2021? 

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2020

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0

Seems harsh if you unknowingly bought something which got its certificate on 26 March 2020.

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1

Always has to be a cut off date. But some people may have delayed getting a CCC to push the date out. IMO it makes more sense to base it on the date of practical completion, which is usually when a house can be live in.  

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0

Wow and more wow. Robbo's just (unknowingly) put another bomb under the property market. It doesn't matter what type of residential it is, it's what's underneath it that matters most. And that's going up, regardless of the age of the building.

Be quick.

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12

So... that'd be the new builds that FHBs can be get 10% finance on then. So we're clear, we've concentrated investor deductibility onto the one house buying option that lets FHBs avoid being priced out of the market based on deposit requirements? 

Golly. I can't imagine what will happen now. 

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11

“So hotels for instance, would not be affected by these rules as they are set up to provide short-term, and not long-term accommodation. The owner-occupier of a house with flatmates would not be affected either,”

Looks like there might be a spike in Air BnB offerings! Unintended consequences?? 

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3

"The same rules will apply to purpose-built rental properties; however, the Government is seeking feedback on whether the 20-year period should be extended for this group". BTR (Build to Rent) is an investment that I am keen on so this is good news, but the exemption should be extended to align it to other "commercial" rental investments or it may cause a market distortion?

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Excellent. Now we just need a monopoly buster to blow the materials supply market open.

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6

Bright Line Test to be extended to 20 years then? Makes sense.....

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Another excellent news for house prices.

With the incentives now focused on new builds, the new battleground in this segment will be between mum and pop investors, FHBs buying suburban fringes, upgraders and developers.

CCC will command a premium and its trading will become a new lucrative thing in the market.

Coupled with build cost pressure, the price floor is set higher and the flow on effects of upward pressure on existing non exempt stock will eventuate.

Investors who can ride through the market changes will do very well in the long run.

Be quick.

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3

Agreed except don't be quick, be slow perhaps very slow as the asset bubble is headed for a pin which may be Evergrande, the Fed putting up rates like RBNZ or many other things but it will happen and the recession/depression that follows will like Mr Westinghouse predicted - in good times people get rich, fortunes are made in the bad times. Eg As Banks have a liquidity crisis the price of assets forced into sale will be what the buyer with cash is prepared to pay.

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0

Looked like we were hitting the peak when we bought in 2015... 

As long as you don't have to sell, time in the market beats timing the market.

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3

Unless you live in Japan or Dublin. Then yeah even 15 years later... Still waiting... 

We are sitting on an asset bubble of astronomical proportions. Best not to Leverage too much imo.

 

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Fascinating.

On the face of it, this seems to suggest that existing housing stock will decline in value vs new builds, giving FHBs a good shot in the market.

The problem is, developers will probably now be MORE likely to outbid FHBs on any site that allows intensification (i.e. pretty much all of Auckland), as they can put new build townhouses on that site which will command a price premium. Oh dear...

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12

So let's say they outbid the FHBs, demolish the houses and build 10 in their place, and that happens to almost every existing house in Auckland. Let me guess, house prices still somehow go up?

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You are starting to understand how it really works.

House prices will always go up regardless of whatever they do with supply, this is central bank and government policy.

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2

Rubbish. I sure hope the "investors" who think that don't expect a bail out, I sure wont vote for any party that gives them one. 

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Rubbish?

The RBNZ have already demonstrated that they will loosen lending restrictions and interest rates and print money as soon as prices look like they might go down.

Jacinda and Blubberboy have both stated they want to see prices continue to increase.

The problem isn't supply.

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6

Lol.... blubberboy. 

The issue with new builds is the rate at which they come to market. We have to figure out how to mass produce, and I mean FIGURE IT OUT! Not consult and meet and talk.

Given enough new build properties, FHB and Investor appetites will be satisfied. We've had decades to figure out how to rapidly build homes, we are genuinely making a meal of it.

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Exactly

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The problem is partly supply, hence we have lots of people living in hotels.

Yes low interest rates are also a problem, but I don't think the RBNZ have demonstrated that at all. They have consistently adjusted interest rates inline with consumer inflation. It is quite possible (or probable even) that consumer inflation could rise at the same time that house prices drop, and that would not be a good time to own property. 

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0

We also have a lot of housing sitting empty because its profitable to do so with current policy settings.

 

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There will be a lag effect. I'm predicting a final orgy of speculation as the bubble final blows off in the next 18 months...then the 5 year hangover as the glut of shitty cookie cutter townhouses makes itself felt.

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We're not getting a glut of anything with our current building supply issues. 

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My intuition reflex kicked in when I read your comment. So this is actually what is going to happen. A further 18 months of speculation, then a five year plateau?

I can see quite a few Aucklanders selling up with the new density provisions and a renewed halo effect in the Waikato-BOP region as well.

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0

Possibly, because those townhouses are much more expensive to build. Or, if too many do it, the old Ireland ghost suburbs spread and builders go out of business.

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This rule change for new builds will make little difference to the rental crisis.

Only a small percentage of property investors are likely to want to rent out a new property & if they do only the richest tenants will be able to afford them.

Who is it that the government is trying to help?    

Surely it should be our poorest tenants?

Under this change rents will still continue increase at a much higher rate than inflation.

Supply for lower quartile rental properties is likely to decline as an increasing number of property investors in this market sell to owner occupiers.  

Lower rental supply is likely to result in higher rents forcing more of our poorest tenants into emergency housing. 

Why does the government have such discriminatory policies that will have the greatest impact on our poorest tenants?

 

 

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10

As always with our present Govt, they well understand the symptoms. But never the causes.

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8

All that this demonstrates is that the incompetent Robertson still doesn't understand what's driving the property bubble.

And he has cemented a hefty price premium on any house built after 2020.  How stupid can you be?

 

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20 years the new meaning of new. 'The [tax] exemption applies to both the initial purchaser of the new build and any subsequent owner within the 20-year period', turning a trumpeted tax reform into a fart.

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And that's why this rule change STINKS.

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It's going to be weird - think about in 5-10 year's time when the market is a jumble of new and old builds. You will have a two-tier market based on age of house - the tax benefit (or lack of penalty) will be capitalised into the house value. Ads for houses will contain the CCC date and be prized assets if they allow interest deductibility.

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Exactly.

The clown show rolls ever onwards.

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You think that is weird, how about claiming a "loss" on a house that was built 100 years ago? If it ain't making a profit after 100 years, then when will it? And why are people continually "investing" in this asset that keeps making a "loss"? 

I think Robbo has hit the nail on the head (well one of the many nails needed that is)

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Don't get me wrong, i actually support the policy. But it's going to need some tweaking to iron out the unintended consequences.

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Do you mean a paper loss or a real loss?

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yes, exactly what I was thinking through!

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Until Robbo produces a further "new" set of rules. Ad Hoc, "whack a mole" Labour policy.

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IRD saying the result is downward pressure on house prices, upward pressure on rents and reduction in housing supply longer term. Housing shortage to get worse while low income, Maori, Pasifika, young households are all worse off. It's a popular policy and there are votes in it though, so a big win for Labour. Expect the pressure for rent controls to ramp up from Renters United as the state housing list spikes again.

https://taxpolicy.ird.govt.nz/-/media/project/ir/tp/publications/2021/2…

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IRD have no idea, never have. They always tow the line that the existing rules are "fair" even when they quite obviously aren't. In their mind the only ones that should pay tax are those doing the actual work in this country. 

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They were correct with their last six regulatory impact statements where they said new legislation would drive up rents

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Deep State

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0

What a bummer. We bought a new build Townhouse on 8 March this year, 19 days earlier than the exemption date. This stupid rule will cost me a lot of money. Labour should be renamed the Jealous Party. Come on National, get your ACT together.

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3

Welcome to the volatility of investing. 

Did you expect Govt and Central Bank policies to guarantee you a return?

To date they have. Things might be changing...and about time to.

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As I say in other comment, I think there is an error in the article and the date should be 2021 not 2020. I would like it clarified.

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They have never guaranteed a income. I’m 71 now and when I bought my first two rentals 22 years ago when I moved to NZ I was making a loss for a few years. I was already retired at 49 so had no income to put the losses against. Just lived on selling shares I owned.

I sold those properties one in 2009 and the other in 2017 to buy what was to become our home in Wellington. We rented it out until we finally sold our other home last year and moved here. I had to buy another rental as the money from our sale would only give us 1% in the bank v 4% on a rental. Didn’t really want it but what can you do.

Labour have always the party to make good capitol gains on, I’ve always made money over the last 50 years when Labour are in. Its a shame that young guns can’t see that and choose to vote National as they are best bet to get a house.

The house we bought here in Wellington had been on the market for ages because it had a bad builders report as the outside had not been decorated in 50 years. We paid $800k for it. Have worked our socks off this last year, had a new roof, central heating, double glazed and redoing all the outside. Spent about $120k. Inside was good although we are up-grading the lighting to chandeliers and plaster craft. Wiring and plumbing was done 10 years ago. Value is now $1.75million. We just can’t understand why a young couple didn’t  snap it up, it would have set them up for life. People are always stopping to congratulate us for what we are doing with this Grand old Lady. It’s a legacy project for us as it’s a one of a kind 1905 house.

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You don't want to think too hard about why young couples didn't do it, because if every young couple did then there would be no value for you to get what you did.

But let me ask you this. Did you as a young person do exactly what you are doing now?

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Being 71 I only look at interest now and then so I don’t know if you will see my reply.

Yes I did this when we bought our first house in 1971 when we got married. It was a small semi detached house with a shared drive. In the two months before we were married I ripped out the existing kitchen used some of the hallway to add to the kitchen and installed a new kit set kitchen. As it was very narrow I built a simple fold down table on the other wall in the kitchen for us to have coffees and breakfast without using the dining room. 11 months later due to huge inflation we thought we could move up the ladder. In fact we were approached by a couple in a bigger house who needed to downsize as they were overstretched. We ended up doing a swap with a cash adjustment. The next house we were in for 11 years. I taught myself many skills on that house including bricklaying, plastering, plumbing and wiring. I never paid to have work done. By the time we sold we had totally transformed the house with a third floor giving us 5 bedrooms and extended kitchen and living area. We added the extra rooms to take in students to pay for private school for our two children. Our next house was a derelict house in the posh area in Oxford. We took out a mortgage higher than my income as the manager of the building society was a friend and he helped us use the income from 5 students to get it. We turned that old house into a great house in 8 weeks. We had to sell it 10 years later as I was transferred to Tokyo for work. There are many ways to get ahead but it does mean working in the evenings and weekends. That last house was sold last year for 1.6m pounds!

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Retrospective - CCC is 2020, not 2021

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I wish you were correct but I think there is an error in the article. I think 2020 should be 2021. Can it be checked please.

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The exemption date is March 2020 so you are fine.

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I wish, but I think the article should say 2021 not 2020.

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Jenee clarified 2020 above, so I assume it has been double checked. Stuff is also reporting 2020: https://i.stuff.co.nz/business/126513086/tax-change-expected-to-cost-pr…

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Go to the IRD link at the end of the article. It confirms it is March 2020 for new builds.

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I find it odd in New Zealand where every argument surround supply and demand of real estate means that the resulting equilibrium price point is only ever above the current equilibrium price point.

Arguments that would normally have resulted into a downward movement of equilibrium, are now turned into arguments saying the opposite.

'Investors will sell their houses so rents will go up'...um that means more FHBs are buying and therefore less people are renting. Unless of course the investor sells to nobody and the property disappears from the market.

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This latest policy from the Stupid Party will only make me put the rent up to cover the losses as the percentage ratchets up over the next few years. I’m 71 now so may only kkep it for the 5 years or I might just give it to one of my Grandsons early. Be nice to own a house at 10.

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Great news for large property investors with big portfolios, just sell 1 or 2 properties to get rid of all residential debt, and not affected.

Bad news for mum and dad investors trying to get ahead in life and help their children and save for retirement.

Sure this is Labours policy ???

Looks more like National as its helping all the super rich.

Great news for those cashed up big investors, who can now prey on all the mum and dad investors who will be forced to sell up in 2023 to 2026 when they cant afford to hold their 1 or 2 rentals due to massive tax bills.

 

 

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Big portfolio with no debt = big taxable profit. So relax, an increase in tax rates will sort things out.

It's coming...too much spending of late needs paying for.

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Hoarding property so we can set our children up for the future?? What is that teaching them?? How to manage money?? How to live a life of empathy with a community focus?? 

How about we all own the roof over our heads (1 house!!) and our children will be able to afford to buy their own properties in the future by working hard and saving for a deposit. Society would function normally and folks wouldn't have to go into deep water to own a property. Crazy idea I know. This victim mentality towards 'mum and dad' investors....you are part of the issue!!

 

 

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Have you ever tried building a house? If not give it a go, and then get back to us and tell us they are overpriced! It's not possible to build cheaper housing in NZ. That effects everyone across the board.

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Yes it is possible to build significantly cheaper houses, BUT not so much the way we're currently doing it, operating as a cottage industry. Not all of us might be impressed with the visual impact, inevitably resulting in cookie-cut rows of lo-tech sameness, but needs must. If we could get a head of steam up on production-line fabrication and sacrifice individuality, we'd be away. I reckon it'd mean individuality (ie: bespoke houses) would end up costing even more to build however, further highlighting the gap between rich and poor.

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The reason we can't build houses and land any cheaper is that Govt (successive) policy has designed it that way.  Historically up until the early 1990's ALL housing in NZ was 3x median income multiple, just like it still is in overseas jurisdictions that have kept affordable housing policies.

It's not a matter of it not being universally possible but NZ Govts. don't allow it to be possible.

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Most people who dont own a house, dont own one because they couldnt be bothered working hard. You can still buy cheap houses in crappy area's and fix them up and move up the ladder. Even if house prices were 20% of what they are in Auckland, most people who dont have their own house wouldnt buy one because they likely wouldnt know how to fill in a finance application. The people who get free / cheap social housing and smash up all the doors and walls, graffiti the house and throw their rubbish under the house - are a good example of why not everyone should be owning a house.

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Haha, that's a new one. So it's not massive increases in house prices that's the problem, and t's not even avocado on toast. The cause of the decline in home ownership is apparently because the population as a whole has gotten worse at filling out forms.

 

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If they wait until 2023-26  to sell up, they may well find their capital gains have evaporated as well. Double blow! 

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And what if all the regulations are harmonised at 20 years?

That means an extension of The Bright Line Test, out to March 2040. Anything sold before then could be assessed at the marginal income tax rate.

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Agreed, this news are great for FHB and land bank investors with big portfolios, not so great for people who just got into property ladder and trying to buy another investment property. Obviously, this rule will push new builds price up so mum and dad investors have to compete with those cashed up investors with big portfolios. And the depreciation of their existing dwelling's asset won't be able to help them to borrow as much as before to get the new builds. 

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Residential property investment is social cancer. 

Owning your own home is fair, every home after that significantly impacts another New Zealanders chance to one day own their own. 

I've heard every excuse / argument under the sun that that is somehow not the case. None of them hold water.

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Just an observation. But every time there is a change in housing policy, investorland rewrites chicken little and expert speak.

The sky is falling the sky is falling, 7000 first home buyers will die.

It is so predictable I reckon the pollies must be running sweepstakes.

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Is it just me, or will the 20-year for new builds whoever the owner distort the market? I can’t claim interest deductibility if I buy an older home as an investment but can if I buy one that got its CCC after March, 2020. So massively leveraged ‘new builds’ should sell at a considerable premium…

 

 

 

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So the government and RBNZ create a 30% house price increase in a year, and then say "Property investors it's your fault! You have to pay!"

And everyone cheers and votes for the people who caused house prices to go up.

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Yeah I hope all of the renters who voted labour enjoy their 30% rental increase, and house prices up 50% so they can never buy.

Why would renters vote to have their rent increased ???

Oh yea,... so they can say "Oh that Jacinda is so nice" 

I remember now :)

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What property investors dont realise is that anyone with 2 brain cells can be an investor. Some people (like myself), are smart enough to see the social imbalances that it causes and in no way is it a "business". Simple greed has put us where we are... the government are trying to reign in the greed at the moment to try and save people (like you) from themselves.

Speculation has put us here.... not the Government.

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Except it is definitely property investors fault and hell yeah they should finally pay just a small portion of fair for single handedly creating NZs largest modern social problem.

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Yet another government trumpeting tax reform and promising housing reform and then rolling it back in the detail. This is  at best dsicriminatory...why should an investor who bought in February 2020 be targeted and one who bought in March be in the gravy. At worst this a cynical carve out for for lobbying developers and investors who have bought new in the last 12 months..

Come on homeless.. if there is an empty house you have seen just move in and squat... it is no more theft than what the capital class does in NZ through legislation and policy like this. When they have all moved into the new home assett class and made themselves another couple of million tax free, they will be raiding your savings and printing another 100 billion to be paid by your kids when the next covid comes around.

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I had already signed up for a new build (starts early next year). Does this mean if I move in myself for 5 years, then move on and retain ownership that I can then rent this and claim a tax deduction for the next 15 years?

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How clever is the government and how stupid are the public.

This should really be called Kiwibuild 2.0 - instead of the government building 100 000 houses for first home buyers - the government is going to get Mum and Dad investors to do their work for them. They get their houses and dont actually have to execute the build.

However the poor FHB still gets left out in the cold as they wont be able to compete with the investors for a nice shiny new home and instead will now compete with developers on old houses with a land size greater than 500 sqm - because developers can snap them up, tear down the existing house and turn a block size like that into - 3 townhouses -  investor gold.

Meanwhile every new development turns into a series of rental slums and all of the "undesirable factors" that come from lots of renters living in the same area- a little similar to the "social housing" suburbs of the 50's and 60's and 70's just more densely populated.

One thing i will guarantee is i wont be buying a house built in 2021 or upcoming years

1. I guarantee with the building supply issues and increased investor demand the majority will be put up far too quickly and shoddily- leaky homes anyone.

2. Having seen how landlords maintain rentals in NZ - not only will they be shoddily built they will be shoddily maintained for the life of the property.

 

 

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I think the conversations have missed the point on new builds for investors. If you look at intensive residential builds the yields are low and the share of land is low. Lower yields mean that even with tax differences an old build would be better.  Also the old rule never buy a unit in a block as you cannot control the rest comes into play as one bad unit owner causes the rest to have issues.

Looking at the rules as an existing Investor would look how to convert existing well built dwellings to flats to make it a new build and capture tax deductibility.

Again if there is no value, then demolish for multiple flats on the land where they can be managed as one investment.

Will not be buying a new build off plans in a block as that makes no business sense.

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Thanks Labour for raising the replacement cost on my property portfolio and locking in the gains. You're the best. 

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Great little tax earner. But why  discriminate, tax all business on their turnover.

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"Interest deductibility rules for property investors detailed; 'New builds' to be exempt for 20 years"

Problem with Jacinda Arden Government : Now more competition /marketing tool for developers as a result FHB will be shut out of new build.

Real Shame for helping speculators and all in the name of helping FHB - What a Farce.

Jenee should highlight it and expose those B#$%

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It is very random picking CCC date and note maybe date of contract. So we can get a tax deduction for interest to buy foreign holiday home but not one here unless it is so called New. Of course it is not new when someone else buys it and rents it out but they can still get the tax relief?. How can this be logical? It is really bizarre and whoever designed this needs a rethink!

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Purchased a new build off the plans 7 months ago, bit of a delay in finishing but the group next door just came out at a nice $300k more and sold in two days.... Thanks Aunty it just gets better

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