How the new government will affect Property investors

Rental Property

It has been only a month but already our new government has made changes that they think will affect the property market in a good way. What they believe will happen is that tenants will be offered better quality rental properties now that landlords have to meet new standards. They also think that houses will become more affordable for first home?buyers now that they have “banned” foreign buyers (who make up only 3% of the sales) from buying New Zealand homes. Australians are exempt from the ban. The other two main proposals that will concern some investors are:

1. Brightline tax rule timeframe increasing from 2 years to 5 years
2. Removing the ability to offset property tax losses against personal income

So what sort of impact will these things have on property investors?

The ban on foreigners buying residential property?[…] Many other countries prevent their land/property being purchased by foreigners and righty so I think. I believe in the long run we will end up with a more stable property market without the foreign driven speculation and any potential impact of a sudden withdrawal from our property market by foreign owners due to financial problems in their own countries.

3% doesn’t seem to me to be enough to have a real impact on our property market. I think that foreign buyers have been used as a scapegoat by the government.

The Brightline tax timeframe increasing from 2 to 5 years.?Currently, if you as an investor sell your investment property within 2 years of buying it, you are required to pay income tax on any capital gains.

The Govt has proposed to push that time frame out to 5 years, so if you sell within 5 years you will be required to pay income tax on any capital gain.

I personally don?t see this as too much of an issue, as if you are a ?trader? of property, you are already required to pay income tax on any trading profit, as well as GST on the transaction anyway and have always had to do so. If you are purchasing an investment property to hold longer term for the income it generates then you will most likely be holding for greater than 5 years anyway.[…]

Sometimes investors who genuinely purchased for the long term have to sell because of illness or because they lost their main income so this will negatively affect those who are forced to sell because of circumstances beyond their control.

Removing the ability to offset tax losses from property against personal income.?Now for some investors, this will be a real area of concern. Those investors that are either unaware of, or have chosen not to invest in positive cash-flow property, but instead, own property that doesn?t generate enough rental income to cover all of the ownership costs. Where the property owner needs to ?top up? the property from their own pocket. These property investors in the past have heavily relied upon the ability to claim the tax losses from their property holdings and offset it against their own personal income and receive a tax credit at the end of the year, thus helping to reduce their losses on their investment property/s.

If the Government remove the ability to offset property tax losses against the investor?s personal income then many of the people who invest in this way and own property that they have to top-up themselves will find that they can no longer afford to own those properties. […]

This one is the biggie. Particularly in the Auckland market, the majority of property investors are negatively geared.