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23 March 2021

Big changes for investors and first home buyers

As the nationwide median property value soared to a record $750,000 in January, the Labour Government have today announced big changes that will imminently affect both property investors and first home buyers. Below is a summary of some of the key changes:

How are investors affected by the changes?

The current Brightline test timeframe is changing from 5 years to 10 years for any property acquired on or after 27 March 2021. The date of acquisition is generally the date a binding Agreement for Sale and Purchase has been entered into. This means that someone selling a house they purchased after 27 March 2021 within 10 years of settlement, will likely be taxed on any profit made.

The biggest exception to the Brightline test, when a property is the seller’s main home, still remains in place. However, there are proposed changes for this exemption when the use of the property changes over the time - we will cover this in more detail when more information is available.

It is also proposed that from 1 October 2021, the tax rules that allow investors to deduct their interest costs from their taxable rental income will no longer be claimable on a property that has been acquired on or after 27 March 2021. The date of acquisition is also generally the date a binding Agreement for Sale and Purchase has been entered into.

For property acquired before 27 March 2021, the amount of interest you can deduct from your taxable rental income will be reduced by 25% over the next four income years, leading to no interest being deductible by the 2025-26 income year.

The Government is still to complete a consultation process on these changes to interest deductions.

Exception for new builds

Both the extension to the Brightline test and the non deduction of interest will not apply to new builds purchased by investors.

How do these changes affect first home buyers?

Kainga Ora offers the Homestart Grant of up to $5,000 to first home buyers for an existing home and up to $10,000 for a newly built home. They also facilitate the application for First Home Loans which allow first home buyers to get a mortgage from certain banks with only a 5% deposit. Eligibility of these offerings are tested by the buyer’s income and the price of the house they are purchasing.

The Government has proposed changes to come in to force on 1 April 2021 that lift the income test from $85,000 to $95,000 for single buyers, and from $130,000 to $150,000 for two or more buyers. The housing price caps for existing and new properties in Christchurch, Selwyn and Waimakariri areas are not changing. However, some key cap increases for homes in other regions are:

  • Auckland from $600,000 to $625,000 for an existing property and $650,000 to $700,000 for a new property
  • Wellington Region from $500,000 to 550,000 for an existing property and from $550,000 to $650,000 for a new property.
  • Waikato Region and Dunedin from $400,000 to $425,000 for an existing property and from $500,000 to $550,000 for a new property.
     

What else is happening?

The Government is investing 3.8 billion into the “Housing Acceleration Fund” which will assist Developers in building new housing stock by covering the costs of vital infrastructure such as roading and water reticulation.

Kainga Ora will be authorised to borrow up to $2 billion in order to carry out more social housing developments and the Apprenticeship Boost payment, which incentivises tradespeople to train and upskill more workers in the construction sector, has been extended to August 2022.

If you have any questions or concerns with these changes, the Saunders Robinson Brown Property Team are happy to have a discussion with you. It is now more important than ever to also take specialist accounting advice before you consider buying or selling a house for investment purposes.

DISCLAIMER

The above information is of a general nature only. The information in this article does in no way constitute legal advice and all readers should contact a law firm for advice relating to your specific circumstances.

Callan Wilson

About Callan Wilson

Callan joined Saunders Robinson Brown in 2018. He is a member of our Property Team.

View all posts by Callan Wilson