The National Party today promised to overturn a raft of tax measures affecting property investors as it released details of its tax policy.
National committed itself to changing Labour’s policy on the following fronts: restoring full interest deductibility for rental properties; taking the bright-line test back from 10 years to two; and overturning the foreign buyer ban for properties worth $2m-plus.
It had previously committed to reintroducing 90-day notice periods for tenants and changing the automatic roll-over of fixed-term tenancies into periodic tenancies.
Opposition finance spokeswoman Nicola Willis said that from July 1 next year property investors would, if National were elected, be able to claim 50% of interest deductibility, which would then rise to 75% in 2025 and 100% in 2026.
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Willis also described the bright-line test as the introduction of “capital gains by stealth”. Currently, landlords who sell an existing investment property within 10 years of its purchase are liable to pay tax on any gains made. New-build investment properties are subject to a bright-line test of five years.
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Willis said the bright-line test, which was initially introduced by National, treated mum and dad landlords like speculators.
Answering questions after the announcement this morning, National leader Christopher Luxon said Labour’s policies had added $75 a week to rents.
He said the reintroduction of tax deductibility on mortgage interest payments for landlords and reverting the bright-line test back to two years would take the pressure off rents.
Luxon did not directly answer a question about how rent reductions would be enforced if landlords didn’t pass on their savings. “Our message is renters will do much better out of a National government. We expect downwards pressure on rents.”
He said National’s tax policies would keep landlords in the market and stop tenants falling out of the private market and onto the public housing lists.
Willis said she had spoken to landlords who didn’t want to put up rents but had to. “They have said, ‘If costs keep going up, I will need to hike my rents more’.”
Luxon would not be drawn on whether the newly announced tax policies would be ring fenced, or whether they were up for negotiation with coalition parties.
National also promised to raise $525 million on average per year from ending the commercial building depreciation tax break.
Chris Farhi, head of insights at Bayleys, told OneRoof that National’s tax policy would boost the lower and upper ends of the residential property market. “We’ve got the surge in migration at the moment. There are more people needing houses. And we’re seeing statistics showing an increase in rental rates coming through,” he said.
He said the reinstatement of interest deductibility and returning the bright-line test to two years would lead to improved returns for investors.
“With the bright-line test you’ll probably see a bit more demand coming back in from the speculator side of the market in terms of people doing things like renovations for sale. What it will do as well is put a bit more liquidity into the lower end of the market, which is typically rental homes. Investors won’t be waiting for a particular period of time before [selling], so you might see a bit more sales activity come back into that space, which is good for both first-home buyers and investors.”
He said investors had been in a holding pattern since the introduction of Labour’s changes in 2021. “We’re only starting to see the impacts of it now. So [National’s policy] will be of particular interest to them.”
At the higher end of the market the return of foreign buyers could add demand, Farhi said. “So you’ve got two completely different things impacting different parts of the market.”
CoreLogic head of research Nick Goodall said National’s measures were designed to attract more demand into the market, which would normally lead to stronger prices.
“Based on today’s figures, [interest deductibility] isn’t going to suddenly turn cashflow negative property into positive. The real difficulty now from a financial perspective for a property investor is the high interest rates.”
“It’s also not an immediate change. It will be slow changes.”
Goodall noted that foreign buyers would pay 15% tax on purchase, but would keep their capital gains once they sold.
The announcement wasn’t a hit with Act leader David Seymour, who is expected to form a coalition government with National. He criticised the tax policies, saying they could have been announced by Labour.
In a post on X (formerly known as Twitter), Seymour said: “It confirms there won’t be real change without ACT. The tax cuts promise about half as much as Michael Cullen promised in 2008. It doesn’t get Labour’s wasteful spending under control.”
