The New Zealand Property Investors Association Welcomes Fair Taxation Measures

The latest data from the Real Estate Institute of New Zealand (REINZ) reveals a steady annual increase of 2.2% in the value of residential property nationwide. However, the landscape of the property market is undergoing notable shifts, as demonstrated by regional inventory changes and housing consent figures released by Stats NZ.

In January 2024, ten out of fifteen regions experienced a decrease in inventory compared to the previous year, according to the REINZ. Stats NZ's recent data revealed a concerning 25% decline in the number of new homes granted consent in 2023, compared to the corresponding period in 2022.

Anticipating Positive Changes in Market Dynamics

Tim Horsbrugh, an executive member of the New Zealand Property Investors Federation (NZPIF), anticipates a welcome change in market dynamics as the new Government moves forward with its commitments to reduce the bright-line test and reintroduce interest deductibility on investment properties.

"Although interest rates are higher than desired, the long-term outlook for property investors appears more promising," notes Horsbrugh. "The Government's promise to reinstate interest deductibility brings property investors back in line with every other business in the country, where interest costs are a legitimate deductible expense."

Reinstating Interest Deductibility

In the current economic climate, renting has emerged as a more cost-effective alternative to property ownership. Corelogic statistics indicate the average family allocates 49% of its income to servicing a mortgage, contrasted with 22% spent on rental payments. Many rental property owners find themselves financially stretched, as they try to figure out how to supplement their mortgage payments to keep tenants living in their homes.

The reintroduction of interest deductibility is of crucial significance for the rental sector. Horsbrugh underscores the fairness of this policy. "The return of interest deductibility is not a 'tax cut' for property investors; rather, it ensures that property investors contribute their fair share of taxes on profits," he asserts.

Fostering a Balanced and Sustainable Rental Market

This policy adjustment will not only benefit property investors but also have positive implications for renters, as it mitigates the upward pressure on rental prices.

"The reinstatement of interest deductibility fosters a more balanced and sustainable rental market," highlights Horsbrugh. "By helping to alleviate the financial strain on property owners, we create a more conducive environment for affordable housing and stability for tenants."

The NZPIF views these developments as a pivotal step to encourage greater participation and investment in the rental sector, leading to improved housing availability and affordability for tenants. As interest deductibility is reinstated, we anticipate positive outcomes for both property owners and renters alike.

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