New property tax policy, what benefits can investors and first-home buyers tap into?

Has the new property tax law taken effect?

New legislation on property tax changes was first announced on 23 March 2021. It will be referred to a select committee for scrutiny and is expected to pass as an amendment to existing law in March next year. The new policy has therefore not taken effect, and any details announced so far may be changed or amended before that date.

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What key points do investors need to know about the new property tax law?

The new tax rules aim to remove landlords’ right to deduct mortgage interest for tax purposes. Under the rules, owner-occupiers who rent their homes to tenants will also be considered ineligible for the corresponding deductions. These measures could add thousands of dollars to each landlord’s annual tax bill. The Government says new builds will be exempt from the tax changes. In other words, people are being encouraged to invest in new homes, with property development and new builds exempt from the interest limitation rules. New builds will also be subject to a five-year bright-line test rather than a ten-year test. New builds will receive a 20-year exemption and retain their ‘new’ status for 20 years after receiving a Code Compliance Certificate (CCC). Notably, the new rules allow these homes to be bought and sold while retaining their exemption for 20 years, regardless of who owns them.

Experts say these exemptions aim to further stimulate the property market through the development and construction of new homes, increasing supply and easing the recent rapid rise in house prices.

What exactly is a ‘new build’?

Government documents state that a home should be considered a ‘new build’ if its construction clearly increases housing supply. This applies in the following situations:

Simple new builds:

Adding one or more self-contained homes to vacant land, each with its own kitchen and bathroom and complying with the Building Code. This includes cases where an existing home is demolished and replaced with a new one.

Complex new builds:

Adding one or more dwellings to a property that already has a home. This includes attaching a new dwelling to an existing structure, such as adding another storey, or dividing an existing building into additional self-contained homes. For example, a 9-bedroom mansion could be renovated and divided to create a separate 3-bedroom home. The presence of an existing home on the property makes this more complex. Apportionment may be required to distinguish the existing dwelling from the new facilities for the purposes of the interest limitation and bright-line rules.

Commercial-to-residential conversions

Converting a commercial building into residential accommodation. For example, if an office building is converted into several apartments, each apartment is considered a new build.

What benefits do new builds offer investors?

1. Demand for new builds is expected to rise following the Government’s confirmation of rules granting property investors new tax exemptions. Investors can still apply for home loans for new builds.
2. The definition of new builds covers a very wide range of housing, with many projects set to benefit.
3. Loan-to-value ratio (LVR) rules already allow borrowers to obtain construction loans for new builds with smaller deposits than those required for existing properties.
4. For investors seeking high returns, the prospect of new builds delivering returns far above those of existing properties is very attractive.
5. New builds now carry little risk in terms of returns, as they require smaller deposits and can better protect investors against rising interest rates.
6. A new build means no repair costs for the next few years, a substantial financial advantage. It is also fairly easy to find a builder offering a ten-year warranty to ensure cost benefits over that period.

What benefits do new builds offer the 160,000 first-home buyers with essential housing needs under the ‘immigration amnesty’ policy?

If you qualify for a First Home Grant, you can receive up to NZ$5,000 towards an existing home. The grant doubles for a new build, to a maximum of NZ$10,000. A home is considered a new build if you have a building contract or are buying a new home that received its CCC within the past 6 months. Grants are calculated per person, so a couple who both qualify could receive a substantial NZ$20,000 between them. The challenge, however, is finding a home that meets your needs and falls within the grant’s purchase price cap. The caps for new builds range from NZ$500,000 to NZ$700,000, depending on where the applicant lives.

 

First Home Grant criteria

The maximum purchase price depends on whether you are buying an existing or new property. A new build is defined as a property issued with a CCC within the past 6 months. The following are Kāinga Ora’s home purchase grant criteria, which vary by region:

• Auckland: NZ$62.5 for an existing home or NZ$70 for a new build
• Queenstown: NZ$60 for an existing home or NZ$65 for a new build
• Wellington: NZ$55 for an existing home or NZ$65 for a new build
• Christchurch: NZ$50 for an existing home or NZ$55 for a new build
• Most other major towns and regions: NZ$52.5 for an existing home or NZ$60 for a new build
• Other parts of New Zealand: NZ$40 for an existing home or NZ$50 for a new build

 

We have also listed some useful websites for first-home buyers’ reference:

Check your eligibility for a First Home Grant: https://kaingaora.govt.nz/home-ownership/first-home-grant/check-you-are-eligible-for-first-home-grant/

KiwiBuild website: https://www.kiwibuild.govt.nz/available-homes/

Hobsonville Point Axis Series affordable first-home website: https://axisseries.co.nz/

A useful website for finding new builds: www.movein.co.nz