The New Zealand property market has seen a sharp increase over the past 12 months, with the overall property market increasing by 23 percent in just 12 months, which has sparked action by the New Zealand Government. On Tuesday 23rd March, the New Zealand Government announced a series of changes, including new taxes for property investors and speculators, as well as new funding to boost property supply with the aim of avoiding a bubble and assisting first home buyers.
The New Zealand property market has now risen to the point where it is now the least affordable real estate of the 36 OECD nations. This has been driven in large part by both foreign investors, particularly with ‘buying tours’ run for groups of Chinese investors, as well as record low-interest rates and a tax regime that makes it an attractive investment destination for many. The chart below illustrates how rapidly the New Zealand property market has risen over the past 30 years:
This week we’re exploring the key changes that have been announced in New Zealand, as well as looking at whether these could impact the Australian market.
What are the changes that have been announced?
Bright Line Test
The first key change was the double of the bright-line test, which refers to when capital gains tax applies on the sale of a property. This time frame has been doubled to 10 years, which means that property investors would need to hold onto the property for at least 10 years to avoid being hit with the capital gains tax. This change will be brought in and apply for properties that are bought on or after March 21, and the time frame for newly constructed properties will remain at 5 years, with the aim of boosting new supply.
Interest Deductibility Removed
Another key change, which will impact many property investors, is the removal of the ability to deduct interest as a property expense for property investors. This particular change has been designed to assist first home buyers and try to create a more level playing field. This change will be brought in from 1 October 2021. For those that already own an investment property, the change will be phased in over the next 4 years, which will mean that property investors will no longer be able to claim the interest expense from the 2025-26 tax year. Again, newly constructed properties will be exempt from this particular change.
New Fund for Supply
The New Zealand Government has also announced the establishment of a new fund of NZ$3.8 billion with the aim of releasing more land for new housing development, as well as making additional grants available for first home buyers.
Will these changes be brought into Australia?
The forecasts for the Australian property market remain very strong across most of the research houses in Australia, and these are not expected to change. The Government stimulus released over the past 12 months to combat the effects of Covid have been highly effective and avoided the property price plunges that many were expecting in 2020. The Australian property market has also not seen the astronomical and unsustainable growth that has been experienced in the New Zealand property market, which is another reason that we do not expect that these same changes will need to be brought into Australia.
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