Auckland house prices rose 18% in the last year making the average house price 8.36 times the average annual salary. There has been much debate regarding property investment in New Zealand and whether it is fuelling spiralling residential property values. The NZ Budget 2015 included a number of changes relevant to both resident and non-resident investors in New Zealand Residential Property and it is thought that these changes may take some heat out of the market.
Here is what you need to know:
From 1 October 2015 a new ‘bright line test’ comes into effect regarding residential property investment. If residential property is sold within two years of purchase the gains achieved will be taxable. There are a few minor exceptions which are excluded, including the main family home, inherited property or property that transfers as part of a matrimonial settlement. It is important to note that this two year test is in addition to the existing intention test applied by Inland Revenue. What this means is that if a property is purchased with the intention of selling for a gain, the proceeds will still be taxable even if the property is held for more than two years. What will be captured by the new rule is property purchased for long term rental purposes being sold within the two year period. This new rule will provide greater powers for Inland Revenue to tax property speculators without having to argue over intention.
All purchasers of New Zealand property will be required to provide Land Information New Zealand with an Inland Revenue number. Due to government department data sharing, this will enable Inland Revenue to better track who owns property and who has been selling property in New Zealand. It will also be the first time data is being collected on who is buying New Zealand property and what (if any) impact foreign buyers are having on property values.
For non-resident purchasers of property a further requirement comes into effect in that they will be required to have a New Zealand bank account. It is anticipated that a compulsory withholding tax will be implemented to that it is easier for Inland Revenue to collect the tax on properties sold within the two year period.
Does this change my ability to invest in New Zealand?
None of these new rules alter the ability to invest in New Zealand property. Property investment is not restricted to NZ residents or citizens. However what it does mean that buyers must have a NZ Inland Revenue number and NZ bank account, each of which are easily obtained.