The recent changes to New Zealand’s Brightline test which occurred this month (July 1, 2024), are poised to impact the rental property market. The Brightline test period for residential properties has been reduced from ten years back to two years. This means that any profits from the sale of residential properties will only be taxed if the property has been held for less than two years. This change is a reversion to the original two-year period set when the Brightline test was first introduced.
For property investors and landlords, this shorter Brightline test period might encourage quicker turnover of properties, as the tax implications for holding properties for longer than two years are removed. This could lead to increased activity in the property market as investors might be more willing to buy and sell properties within shorter time frames without the fear of hefty tax penalties.
Additionally, the reinstatement of full interest deductibility from the 2026 tax year provides further financial relief for property investors, potentially making investment properties more attractive.
Unfortunately, with the property market in a slower than usual state I believe the outcome will be more listings of investment type properties and slower sales until the interest rates become more favourable for purchasers.
So, what will this mean to you at the coalface? The changes could result in a short term increase in available rental properties especially as investors look to offload some of their stock in light of the new tax rules and high interest rates. You may already notice rental returns fall for a time until some balance comes back to the property market.
You may also notice, especially in Wanaka where there has been a high level of spec type of properties built in the boom times, become ‘for rent’ with the ability to sell not being that easy right now.
Therefore, rental prices should see a small dip.
What comes next? You possibly may need a crystal ball… but we are just seeing the Reserve Bank starting to position themselves for some needed interest rate cuts now inflation is largely under control. What that does to the rental market, proppymanagement.co.nz would be interested in your thoughts?
