Property investors urged to buy new, as tax change proposals revealed

Investors are being encouraged to buy new builds, with the Government today confirming more details of its changes to tax rules for property.

With no word yet on where the houses will be built, the devil is in the details, community housing providers say.

Consultation is now open on the proposals to stop interest deductions being claimed for residential investment properties.

It confirms anyone who bought a house before March 27 will see interest deductibility gradually phased out between October this year and March 2025.

But if a house was purchased after March 27, that will immediately stop from October.

Property development and new builds are exempt.

New builds will be subject to a five year brightline test, rather than the expanded 10 year test. That means if a house that is not the family home is sold within five years, tax is likely to be owed.

Revenue Minister David Parker said: “The proposal to exempt property development and new builds should help boost supply by channelling investment towards increasing housing stock and away from direct competition with first home buyers and owner-occupiers for existing housing stock.

“This consultation is focused on finalising the detailed design of the rules. The proposals will not affect the main home.”

The Government has revealed a number of other exemptions to the rules, including commercial or industrial properties, employee accommodation, farmland, care facilities and commercial accommodation.

Community housing providers are also exempt.

Finance Minister Grant Robertson said the goal is to encourage more sustainable house prices, with the hope this will dampen investor demand for existing housing stock.

Consultation closes on July 12, with legislation expected in Parliament later this year.