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Government unveils investor clampdown

The Government has announced a range of new measures to tackle the housing crisis, including an extension of the bright-line test to ten years and the removal of interest deductibility, as the clampdown on investors continues.

Tuesday, March 23rd 2021

The housing package was announced by ministers this morning. Here are the main details for investor clients.

An extension of the bright-line test to ten years 

The current bright-line test will be doubled up to ten years as part of the new reforms.

Grant Robertson said the move was needed to curb "rampant speculation", with investors making up the biggest share of buyers in the market.

"Extending National’s bright-line test and removing interest deduction loopholes for investors will dampen speculative demand and tilt the balance towards first home buyers," he said.

The new plan will keep the bright-line test for new builds at the current five years.

Removal of interest deductibility "loophole"

The Government said the current tax system, which allows investors to offset interest payments against their tax bill, "favours debt-driven residential property investment over more fully taxed and more productive investments".

The "advantage" will be removed for investors.

Interest-only lending review 

Ministers said they were considering a clampdown on interest-only loans.

The RBNZ will report back to ministers in May, and will also review debt to income ratios. 

$3.8 billion housing acceleration fund

The Government is launching a $3.8 billion housing acceleration fund to speed up the pace of residential construction.

The fund will boost housing developments by funding infrastructure services like roads and pipes.

The Government will also help Kāinga Ora borrow an additional $2 billion to help with new land purchases.

Caps on First Home Loans lifted

Price caps on First Home Loan-eligible properties will be lifted to ensure that more homes qualify for the government scheme.

The cap in Auckland rises to $650,000. for existing properties. In Wellington it increases to $700,000. 

Income caps to get financial assistance will also be lifted to $95,000 for single buyers, and $150,000 for two or more people.

The changes come into effect on April 1.

Comments

On Tuesday, March 23rd 2021 11:07 am Jonny Good Guy said:

But the banks have made 90% lending harder and it will get harder with new rules rolling out They need to address this now Did they ask the banks Yeah Na

On Tuesday, March 23rd 2021 2:48 pm Skeptical said:

Two things that baffle me here: 1.) If the intention was to as she says 'stamp out speculation', then how would increasing the BL to 10 years from 5 change this at all? As far as I'm aware most investors buy and hold. If they aren't doing that, then they would have been hit with the BL anyway??? 2.) Interest on loans is a business expense everywhere else, it seems very inconsistent to remove it here - how is this going to work practically? Is a commercial premises a business owns no longer taxable? What if I rent an office an my owner occupied house? What if I get a commercial loan to purchase a residential property for business purposes. Why is this being referred to as a loophole?? I get the intention of the action, but it seems like they just decided that these things sounded good rather trying to create policy that's actually going to make any changes.

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