Government is concerned about the pace of price growth in the housing market and has introduced legislation aimed at slowing the rate at which investors purchase existing property and have also incentivized purchase of off-plan property. This objective has the intent of encouraging and supporting new construction and taking investor focus off existing property which in turn allows first home buyers greater opportunity to purchase.
WHAT IS THE DEFINITION OF A NEW BUILD?
- The IRD definition defines a new build as having Code Compliance Certificate ( CCC ) issued on or after 27 March 2020 or acquiring the “off plan” on or after that date. The status as a new build will expire 20 years after a new build receives its CCC. For off plan, the 20 years starts from date of issue of the CCC. The exemption will apply to anyone who owns the new build within the 20 year period.
- Bank Criteria – definition is within 6 months of issue of CCC. The property must be purchased off the developer.
WHAT ABOUT THE BRIGHT-LINE TEST ON INVESTMENT PROPERTY?
- Existing investment property is subject to a 10 year bright-line test.
- New builds acquired after 27 March 2021 would be subject to a 5 year bright-line test.
- If CCC is already issued, then you must acquire the new build no later than 12 months after the CCC was issued to get the 5 year bright-line.
WHAT ABOUT INTEREST DEDUCTABILITY ON INVESTMENT PROPERTY?
- Investment property acquired on or after 27 March 2021 – no allowance for interest deductibility from 1 October 2021.
- Investment property acquired prior to 27 March 2021, interest deductibility reduces by 25% per year and phased out from 2025-26 income year.
- Off-plan/new builds – Interest deductibility will remain in place for off plan/new builds acquired as a residential investment property.
LVR BANK LENDING FOR NEW BUILD APARTMENTS OR TERRACE HOMES FOR INVESTMENT
- Banks lend to 60% LVR ( loan to valuation ratio ) on an existing property. Ie you would need 40% equity 60% debt.
- For new builds /off plan – banks will potentially lend to 80-90% LVR. Conditional on individual investor circumstance & apartment size.
- Bank LVR Lending criteria are higher for owner occupiers often to 90%, and for those that qualify for a Kainga Ora loan, lending criteria is to 95%. Specific advice should be sought from your lender or mortgage broker refer www.firsthomehub.co.nz
LOWER BANK INTERST RATES FOR NEW BUILDS
- A number of banks have introduced lower mortgage rates for new builds verses existing property, advice should be sought from your lender or mortgage broker.
FOR MORE DETAILED ADVICE
Refer to the following Government information sheets:
1) Interest limitation – information sheet by NZ Government
2) Bright-line test proposed changes by IRD
3) Interest deductions on residential property income – Proposed changes by IRD
4) Design of the interest limitation rule and additional bright-line rules by IRD
- The summary provided is correct at the time of writing however Govt tax policy and bank lending criteria are subject to change
- Purchasers should seek specific tax advice from their accountant
- Purchasers should seek specific financial advice from their lender or mortgage broker