This is yet another in the long list of changes being introduced to try and improve the property market for tenants. Unfortunately, like many of the other new regulations it is misguided and will have many negative unintended consequences, like driving up rents.
First time rental property purchasers and tenants will be the most negatively affected by the new regulations.
Buying an investment property is an expensive undertaking. Fees for legal and accounting advice, set up costs for new companies or trusts, finance application fees, registered valuation fees, insurance, pre-purchase checks e.g. asbestos, building inspection etc.
Prior to the ring-fencing, the purchase costs for a rental property could be offset against other income earned in that tax year, thereby reducing the amount of cash/savings an investor needed to purchase the property.
Now under the new regulations rental property buyers are not able to get the tax deduction when they need it most.
I’ve included the cartoon created by the NZ Property Investors Federation to help clarify the effect of ring-fencing. It increases the hurdles in the first few years, then reduces them later by allowing the tax losses to be deducted when the investor starts making profits. It’s going to stop a lot of new investors. Seasoned investors with multiple properties won’t notice a thing.
The NZ Treasury’s regulatory impact statement said that “the new law will increase rental prices.”
This law is another attack on responsible, hard-working New Zealanders who are trying to save for their retirement. As a side effect, it will make it harder for first home buyers as well. FHBs will find it harder to save for a deposit as their rents will continue rising as fewer new rental properties will come onto the market.
The government has made it abundantly clear that they are incapable of providing housing. They need the private sector to assist i.e. private landlords. So why do they keep putting hurdles in the way of people who want to invest their savings into rental property? More rental property is what we need, it’s the only thing that can slow the rapid rental inflation we are experiencing now. There are already 11,000 people on the Housing NZ waiting list and we are spending $19.5 million a week on motels and hotels for emergency accommodation. How on earth is stopping new property investors buying property off-the-plans and creating more rentals going to help anyone?