Policy changes bring certainty and clarity, CFML says
More burdensome tax treatment and increased compliance has seen property investors pull back from the market, but that’s likely to change this year, a non-bank specialising in investment lending says.
Conrad Fund Management Limited’s chief executive Patrick Middleton (pictured above), said that proposed changes to tax interest deductibility rules, reversal of the bright-line test and stabilising interest rates should provide “greater certainty and clarity” to the investor market.
“With house prices potentially near the bottom of their cycle, interest rates anticipated to be near the peak and greater clarity around tax, we expect property investors to have more confidence in the year ahead,” Middleton said.
The National-led government has promised to restore interest deductibility to 100% from April 1, 2026, as outlined in the Coalition Agreement documentation for National/ACT that was released in December.
The government has proposed that interest deductibility will be at 60% in the tax year commencing April 1, 2024, increasing to 80% from April 1, 2025, with full deductibility available from April 1, 2026.
The National-led government has also stated its intention to reverse the bright-line test to two years, which it says will be legislated to take effect on July 1, 2024.
Middleton said that the role of property investors in helping to address the housing crisis should not be overlooked, particularly given current high net migration.
Property cycle, interest rates could provide greater certainty
Middleton said that property investors will have observed that the property market is now at the low end of the cycle, providing an opportunity to buy and extend their property portfolio.
CoreLogic figures show a 1.1% rise in national property values over the three months to November, average values having fallen 4.5% over the 12 months. Compared to the peak, property values had fallen by 12.3% as at the end of November 2023, data shows.
According to realestate.co.nz figures, the national average asking price in December was $877,216, down 3.9% year-on-year, and up 1.4% month-on-month.
Taking economic forecasts into account, the official cash rate remaining at 5.5% in November, the Reserve Bank revising its peak forecast to 5.69%, Middleton acknowledged that interest rates are now at or close to their highest point in the current cycle.
“We’re expecting that astute investors will step in, knowing that they can probably ride an interest rate cycle down over the next couple of years,” Middleton said.
“Combined with interest tax deductibility, where we are in the current cycle of interest rates and property prices makes property an attractive investment solution.”
Commenting on the proposed reversal of the bright-line test, Middleton said that the tax, which was initially introduced by National, worked well with the initial two-year period.
“We can’t see any harm in going back to something that worked well,” Middleton said.
Implemented to capture taxpayers who bought and sold property within a short time period for capital gain, the bright-line test was extended from five years to 10 years on March 27, 2021.
Middleton acknowledged that changes to the CCCFA, introduced by Labour in December 2021 were broadly focused and had impacted access to finance.
The government’s intention to rewrite the Credit Contracts and Consumer Finance Act to protect vulnerable consumers is likely to be beneficial to residential borrowers, including property investors, he said.
“The intent of the legislation perhaps didn’t hit the market that it was intending to and became more broadbrush,” Middleton said.
“This resulted in borrowers borrowing against property getting caught up in clunky legislation.”
Conrad Funds Management caters for investors who are looking to build their property portfolio and, for various reasons, are unable to access funding through main banks.
The non-bank lender provides funding for residential properties throughout New Zealand, with loan terms of up to 30 years and interest-only repayments for up to five years available (subject to responsible lending inquiries for consumers).
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