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Potential Opportunities for Property Investors

A change in government could see more opportunities open up for property investors in New Zealand, with adjustments to the Brightline Test, removal of the foreign buyer ban, and a reinstatement of interest deductibility just some of the policies being considered. Find out how these possible changes could reshape the property market landscape and what the overall impact would be for property investors.

A shorter Brightline test

One of the most anticipated changes being proposed revolves around the Brightline Test, which was designed to determine whether the gains on the sale of residential properties should be taxed.

Currently, the Brightline test for properties being sold is set at:

  • 5 years for new builds and 10 years for all other properties bought on or after 27 March 2021

  • 5 years for properties bought between 29 March 2018 and 26 March 2021

  • 2 years for properties bought between 1 October 2015 and 28 March 2018

A shorter Brightline Test would imply a reduction in the holding period before capital gains tax is applicable and for property investors that could offer greater flexibility. A shorter holding period means investors could potentially turn over properties far quicker, leading to improved liquidity and the ability to adapt to market changes more readily.

Softening of the foreign buyer ban

The foreign buyer ban, introduced in October 2018 to cool the property market and protect New Zealanders' access to homes, has been a prominent feature in recent years. However, a change in government could lead to a softening of this policy, essentially allowing a controlled influx of foreign investment that would potentially stimulate the market.

Under a new government, foreign buyers could once again be permitted to buy NZ properties, albeit with a price of $2m or greater and with a 15% tax attached. For property investors, this change could translate to increased demand for properties, especially in high-demand areas or those with significant growth potential. It may also open up opportunities for joint ventures or partnerships with foreign investors, allowing for more extensive and potentially more profitable projects.

Reinstatement of interest deductibility

The reinstatement of interest deductibility is another potential opportunity for property investors. Where previously property investors were able to deduct interest expenses on loans used to finance the acquisition of rental properties, this deduction was removed in 2021, affecting the profitability of many property investments.

If this policy is reinstated, it could lead to higher after-tax returns for property investors, which would not only boost overall profitability, but also potentially attract more investors to the market, leading to increased competition for properties. It could also encourage existing investors to expand their portfolios which would further stimulate the property market.