Key Facts:

  • If National reduces the bright-line test back to two years, experts believe there may be a flood of investment properties hitting the market from mid-next year.
  • “Mum and dad” investors who bought properties in 2020 are now struggling to top up their mortgages due to higher interest rates.
  • A change to the bright-line test would allow these investors to sell their properties without being hit with a tax bill.
  • The bright-line test currently stands at 10 years for properties bought after March 27, 2021, and five years for properties purchased prior to that date.
  • CoreLogic chief property economist Kelvin Davidson predicts that more investment properties will be listed for sale once the bright-line rule changes.

Article Summary:

Industry experts suggest that a significant number of investment properties may be put on the market if National reduces the bright-line test to two years. Many “mum and dad” investors who purchased properties in 2020 are struggling with higher mortgage repayments due to increased interest rates. The bright-line test is New Zealand’s version of a capital gains tax, requiring people to pay income tax on any profit made from selling a residential property within a specified period. These investors would be able to sell their properties and avoid a tax bill if the bright-line test is reduced.

Loan Market mortgage adviser Dave Williams believes that some investors may decide to sell their properties and “take the money and run” once the bright-line test is shortened. This could lead to a surge of properties on the market from July. CoreLogic chief property economist Kelvin Davidson expects more investors to sell their properties as a result of the bright-line rule change. He points out that investors may be losing money on a daily basis but would rather wait for the bright-line test to expire than pay a capital gains tax.

Property investor Nick Gentle highlights that rising interest rates, increased tax bills, and higher insurance costs have made it difficult for investors. He expects an increase in property listings due to changes in the bright-line rule. Bayleys Canterbury investment sales specialist Angela Webb predicts that new two and three-bedroom townhouses bought in 2020-2021 will likely hit the market, as investors find it challenging to cope with higher mortgage rates and insufficient rental income. There may also be property traders who decide to sell their properties once they no longer have to pay tax on the profit.

However, New Zealand Property Investors Federation president Sue Harrison believes that most investors will not sell their properties solely due to the bright-line rule change. She emphasizes that rising taxes are a bigger concern for investors, and the incoming government has signaled changes in this area. The National Government plans to reinstate interest deductibility rules gradually, with full interest deductibility set to be implemented from April 2026.

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