Article: Property Investment

Political Promises (Part 2 of 2) with Frank NewmanPolitical Promises (Part 2 of 2) with Frank Newman

Last week I reviewed Labour’s election promises as they affect residential property investors. This week its National and the potential coalition parties, NZ First and the Greens.

While Labour is proposing significant changes for residential property investors, National isn’t.  There is nothing in their announcements to indicate further measures that would adversely affect property investors.

However, during its time in office National has already targeted property investment for reform. Few of the changes would have been welcomed by residential property investors.

They have removed the depreciation allowance on residential buildings, which significantly reduced the deductible expenses property investors could claim and reduced the opportunities for negative gearing (which is the so-called “tax loophole” Labour wants to close). 

In this last term they introduced mandatory insulation requirements, the fitting of smoke alarms, and there is currently a Bill before Parliament to limit tenant liability to a maximum of four weeks rent in the event that they cause material damage. The Bill will also clarify the standards and procedures for meth’ testing.

It was National that introduced the ‘bright line’ test, which targets property investors by assuming rental property bought and sold within two years of purchase was purchased with the intention of resale – and taxes any resale gains as income. Labour would extend the time frame to five years.

National’s only new policy is with respect to urban planning. They will “introduce new..urban planning laws separate from the Resource Management Act (RMA) to encourage more responsive planning, faster development, and better protection for the environment in our growing cities.”

That’s a strange policy and is characteristic of Minister Nick Smith who had previously criticised the RMA and promised major reform, but when the changes were finally made, National added complexity and hurdles.

New Zealand First would:

· “Encourage private investment in upgrading rental housing through the
taxation system. Owners of rental houses could invest in specified qualifying
home improvements and be able to expense them for income tax purposes in the
year in which the expense is incurred, including home insulation, solar heating, heat
pumps, HRV heating systems, wood pellet and other approved burners, earthquake
strengthening, fire, food and other disaster protection.”

· “Encourage smaller and more affordable houses on smaller sections.”

· “Remove GST from rates on residential property.”

· “Ensure that New Zealand’s housing stock is restricted to New Zealanders.”

· On reform to the RMA New Zealand First would repeal clause 8 of section 2 and
remove reference to the ‘principles of Treaty of Waitangi’ and “amend definitions
relating to ‘spirituality’ which..has no place in resource consents“.

The Greens would:

· Remove the obligation on tenants to pay letting fees.

· Remove the landlords’ 42 days notice option and restore the standard 90-day notice

· Limit rent increases to no more than once a year.

· Require that the formula for calculating any future rent increase be included in
tenancy agreement forms.

· Set a default of three years for fixed-term tenancies on the standard tenancy form.
Landlords and tenants could by agreement vary that term.

· Allow tenants the right of renewal on rental agreements once their lease period has
ended. This potentially may give tenants a right in perpetuity, although the policy
lacks specifics.

The first four of these policies are identical to that promised by Labour.

What is evident from the policies is that if a National led coalition is back in charge it would be pretty much status quo for residential property investors. A Labour lead coalition would result in significant reform to the taxation of residential property investment, and changes to tenancy arrangements. Some landlords will be of a view that what the Greens and Labour are proposing is simply the first instalment of an intention to move towards a more regulated and controlled rental market based on their social objectives. 

Less certain is how much influence New Zealand First would have on either National or Labour; probably not much given the policies most relevant to residential property investors are not “bottom-line” policies. If Winston Peters does hold the balance of power he has said a decision about which party he will support in Government (and the terms of the coalition) will be made by October 12th when the writs with the final election results are returned.

Frank Newman is the principal of Newman Property Consultancy. He is the author of numerous books on investment matters. For questions or comment about this article contact .(JavaScript must be enabled to view this email address)

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