The recent changes announced by the government to promote a more sustainable housing market will likely incentivise investors to purchase new builds – which could have an unintended impact on first-home buyers.
In March, the government launched new rules that Prime Minister Jacinda Ardern said would “increase housing supply, relieve pressure on the market, and make it easier for first-home buyers.”
Read more: Bright-line test extension draws criticism
Among the new rules was a doubling of the so-called “bright-line test,” which treats financial gain on a residential property that is not a main home as taxable income for a set period, to 10 years from the previous five.
Crucially, new builds are exempt from the doubling of the bright-line test period – a key exclusion that experts say could drive investors towards new properties.
Andrew Nicol, managing partner at property investment service Opes Partner, told stuff.co.nz that this exemption, along with other factors, will make new builds a good option for investors.
“New builds are now less risky in terms of returns, they require lower deposits, and they are better protected from interest rate rises,” Nicol told stuff.co.nz. “So, I’d advise investors to go for a new build - unless they can seriously improve an existing house by doing a major, value-adding renovation.”
However, property accountant Anthony Appleton-Tattersall told stuff.co.nz that activity from investors could have an unintended impact on first-home buyers – who, because of lower deposit requirements and KiwiSaver incentives, are especially active in the new build market.
“Now lots of investors will pile into new builds and shun existing property,” Appleton-Tattersall told stuff.co.nz. “It is the logical thing to do when you have two similar investments, but one is so drastically tax-disadvantaged. But it is going to make new-build property harder to buy for home buyers, whether first-time or movers.”