April 1st – otherwise known as April Fools Day. Did you get pranked today? March has been an eventful time in our industry, so we are looking forward to things settling down a bit in April. A couple of public holidays this month won’t go astray!
Some of the big news of March was:
Financial Services Legislation Amendment Act came into force and all financial advisers and financial services providers (including banks and insurance companies) had to change their ways of operating. This also included the way that Building on Basics Limited and Elise operates.
Please go and have a look at the Important Information page here, it has information about how we operate and what you need to know about us!
We are also in the process of changing our contact management system, so please bear with us as we implement the new system. If you are currently on our database we may send you an email asking for your permission to keep sending you our updates (such as these newsletters) as we add you in to our new contact database, and update your details in the new system.
Government announcements on Housing Policies.
The ramifications of these changes will be immediate for some first home buyers, and for residential property investors it will require a rethink of their plans and a review of their portfolios.
Following is an outline of what was in the Government Announcement
Govt housing package backs first home buyers
- Bright-line test doubled to 10 years with an exemption to incentivise new builds
- Interest deductibility loophole removed for future investors and phased out on existing residential investments
- More Kiwis able to access First Home Grants and Loans with increased income caps and higher house price caps in targeted areas
- $3.8 billion fund to accelerate housing supply in the short term
- Govt to support Kainga Ora to borrow $2 billion extra to begin land acquisition programme to boost housing supply
- Apprenticeship Boost initiative extended to further support trades and trades training
Elise’s First thoughts on it
BRIGHT-LINE: The bright-line test increase from 5 to 10 years is a way to slow down the speculation of property investors. For Owner Occupiers this will mean nothing, as long as you are living in the home.
There are a number of “gotchas” for those that then change their property from a home to a rental when they move out. If you’re in this position, to ensure that you don’t end up paying more income tax than you need when you sell the property you will need to get a valuation done at the point where you change the property’s usage to rental.
I suspect that many people will get caught out when they make this change and then when they do sell the property will end up with a big tax bill that they were not aware they were going to have. While this is an “income tax” it is a form of capital gains tax in disguise.
INTEREST DEDUCTABILITY: Residential property investors will not be able to claim interest as an expense against their rental income. This is good and bad.
The good – It will force people to look beyond property as an investment and encourage people to invest in productive assets, such as business.
The bad – property investors are now going to have a tax bill as they are not able to claim the interest as an expense. For those highly geared investors this will mean that they may no longer be able to afford to keep the investment property and will need to sell. This will reduce the available renting stock for renters. Other investors will increase the rents to cover the increased costs, which will put even more stress on renters. Note: there is an exclusion for new builds.
This policy is being phased in over 4 years. This is in a hope that the property market will not tank due to an increased number of properties being sold to avoid the tax bill. We will talk more about this in the coming weeks. You will need to seek advice from your accountant, and then work with us on the finance to make sure of continued affordability!
INCREASED INCOME CAPS AND HOUSE PRICES FOR FIRST HOME BUYERS: The government indicated that by increasing the income caps about 9,300 couples and 3,700 singles who are currently renting, will now qualify for the First Home Loan and Grant. For every person / couple that it helps that has to be a good thing.
THE HOUSING ACCELERATION FUND: The Housing Acceleration fund is great but there will be a lot of questions about how this fund will be used, and how it can support developers to get more properties developed faster. I just hope that they don’t waste the money consulting about how they can use it, and get land purchased and infrastructure in place for more builds. The time for talk is over – the undersupply of housing is still our real issue.
Keep an eye out for posts on our Facebook page and blog in the coming weeks, we will dig deeper into these various issues and talk about what the changes could actually mean for you.
It’s now 3 months until you need to have put the full $1042.86 into your KiwiSaver account to get the full government contribution of $521.43.
This is particularly important now if you are looking to buy your first home, you may find that it is closer than you think with the new caps and incentives, and getting the full government contribution of free money will help you get there. As always, ask us if you are unsure of how to check your KiwiSaver balance. Remember that you can make a lump sum payment if you need to get yourself over that line!
If you’re not enrolled in KiwiSaver, get in touch! It’s worth it – especially if you want to buy your first home in the next few years. You’ll need to have been contributing for at least 3 years to be eligible for the First Home Grant.
Well the big news of course is the Government announcement from the 23rd March. We have already written about that at length, and do keep an eye on our Facebook and blog for updates as things progress.
It will certainly be interesting to see the effects on the housing market in the coming months. The market is going to depend on how investors respond to the changes introduced by the Government. There may be an increase in houses sold by investors which will create more opportunities for all Owner Occupiers, not just First Home Buyers.
Banks and Finance
Interesting that Westpac announced a week or so ago that they are considering selling their NZ operations. Westpac has approximately 20% of the market in NZ and is the Government’s bank. The talk is of some Super Fund buying the bank – this will be a complex purchase and require Commerce Commission approval.
One year fixed terms have been very popular with borrowers in the last year or so, as interest rates have been going down. Now that we seem to be at the bottom of the market this looks to be changing. A survey (read Tony Alexander’s article here) of Financial Advisers shows that more people are looking to fix for longer terms, for various reasons including the concern that the RBNZ may tighten monetary policy sooner than previously thought.
Long term interest rates are starting to move up and so now is the time to consider your lending to ensure affordability and make the most of the low rates for the next 3 to 5 years. There is no point in fixing for the long term if you are considering selling, although there are options to consider if you are looking to upgrade to a different property.
The important thing is to consider what your intent is with your property before you make any changes to your mortgage. We can talk you through options, your situation will be different to anyone else’s.
It is good to see the Government taking a stand with their bold initiatives to take the heat out of the market, and to support the Reserve Bank . The RBNZ did provide some advice to the government and indicated that the interest changes for investors is not something they would recommend, as did the IRD.
However, these initiatives in conjunction with the low interest rates will help investors and homeowners transition through the changing environment which is still being affected to some extent by the pandemic, as people’s income and job security is affected by the lack of tourism and limitations on some events.
An update from us.
As well as the busyness of all the changes going on within our industry and our business, Elise has also managed to take some time out to work on her own home renovations – affectionately known as the Munter to Minter Project. A sudden flurry of activity has seen a massive jump forward in terms of how the house looks – freshly plastered and painted, what a difference it makes!
As the office has been the obvious storage spot for the furniture from the rest of the house, Janneke and Eroica have been enjoying more days working from their home offices. Good timing for Eroica, as she managed to “renovate” her pinky toe on the corner of the couch and has been on crutches!
As always, we would love to hear from you if there is something you need help with, or even if you’re just feeling a bit unsure of where you’re at in light of all these changes.
Send us an email or book an appointment through the Calendly link at the bottom of the page.
All the best
– Elise and the team