The government has revealed proposals to have new builds exempted from planned changes in the taxation of residential investment properties. Public consultation is being invited on the details of these proposals which would see to an end of claims against interest deductions for residential investment properties, except for new builds.
The consultation document indicates that investors will still be able to claim home loan interest on new builds, with new builds being defined as self-contained dwellings with kitchen and bathroom that has been added to residential land. The new build could be stand-alone or attached. It could also be a replacement of an existing house or renovated to create two homes. Commercial properties being converted into apartments and inhabitable houses that have been substantially renovated to make them habitable may also fall in this category. Modular or relocated houses added to vacant land may also qualify.
According to Deloitte NX partner, Robyn Walker, this definition of new builds is broad but good news as it would encourage subdivision and new constructions on existing land. She however noted that it may make interest deductibility issues more complicated. Especially for those building on land that already has an existing loan and would want to refinance to enable construction.
The government is hoping to receive feedback on these proposals to decide how they would work. This move is expected to encourage stronger demand for new build properties. Associate Finance Minister, David Parker, said the changes would boost property investment towards increasing housing stock. He expected this to reduce the competition for the existing housing stock from both first-time buyers and owner-occupiers.
Finance Minister, Grant Robertson, echoed this sentiment, saying that the goal was to promote more sustainable house prices by reducing investor demand for existing housing stocks and improve affordability for first-time buyers. He said the changes were part of the government’s plan to cool the property market.
However, Walker also raised concern as to how long exemptions on interest deductibility would last for subsequent owners of the properties. She said cancelling the ability to claim interest deductibility too early would encourage new builds but could make the properties less appealing to potential new owners. The government is considering whether and for how long subsequent owners could enjoy this exemption from interest changes.
Public consultation on the proposals and options is open until July 12th. The new rules are expected to be heard in parliament thereafter, but begin to apply from October 1st, 2021.