Home buyers forced to change property investment behaviour
The New Zealand government has been introducing reforms to cool down the housing market – and they seem to be working. Many have been left confused and the red-hot market is fizzling out, according to a recent survey of chartered accountants and tax agents.
The survey, jointly run by the Chartered Accountants Australia and New Zealand (CA ANZ) and Tax Management New Zealand (TMNZ), found that 70% of respondents claimed their clients changed or voiced their intention to change their residential property investment behaviours due to ongoing adjustments to the extended bright-line test and proposed changes to deny interest deductions.
Further results from the survey showed key factors in play, such as the complexity of the proposed rules and uncertainty as the details could change before the legislation commences in March 2022, despite the bright-line and denial of interest deductions coming into play from earlier this year.
With these factors, over 21% of the respondents said they feel “not at all confident” about advising clients on the proposed new build interest limitation rules, while over 65% felt the phase-out and denial of interest deductions would be somewhat or extremely difficult to comply with.
Similarly, almost 50% of the respondents said they were either somewhat confident or not at all confident in advising on the new build bright-line test.
“The survey suggests that the housing market has been given a policy placebo in the form of legislation that is influencing behaviour before it is fully developed and enacted,” said CA ANZ NZ Tax Leader John Cuthbertson.
“Residential property purchasers and investors typically react to the specific detail of legislation. However, in this case, the market appears to be reacting to the complexity of the proposed legislations carveouts and inconsistencies and the fact that it won’t know exactly what is in place until March 2022, despite it being backdated to capture activity in 2021.
“To be fair, the government’s aim was to cool down the overheated housing market, which is causing a range of economic and social issues, but we’re not sure this is the best way to do it.”
A joint survey by Crockers Property Management (Crockers) and economist Tony Alexander in November 2021 also showed changes in property investor behaviour and insight, with 27% of respondents thinking about buying a property over the coming year – a slight decrease from 28% in the October survey.
Meanwhile, 26% of property investors said they plan to sell a property in the coming year, a slight increase from the previous month.
For those whose mortgage rate is coming up for renewal soon, the survey showed that 37% of investors plan to fix for a three-year term. Meanwhile, 44% of borrowers already paying principal said they will accelerate their repayments.