New Political Landscape
Several buyers and vendors have asked recently what effect the new coalition government might have on real estate, and particularly the Dunedin market.
The short answer is probably very little.
One of the promises made during the election campaign by new Prime Minister Jacinda Ardern was the early introduction of legislation ending overseas buyers’ rights to purchase existing property. Although if the buyer intends to reside in New Zealand they could escape the ban, if previous attempts to introduce this measure are a guide. More recently, Ms Ardern has promised this measure in the first 100 days of office. So, by early February we can expect the legislation to come before Parliament.
Firstly, it’s worth bearing in mind that nationally a very small percentage of all residential sales are to overseas buyers. Some of these buyers could hold New Zealand passports but happen to be working overseas. It’s unlikely many overseas buyers will become immediately aware of the impending restriction and even if they do, it’s unlikely there would be any major flurry of activity from them to affect prices. Nevertheless, readers of my previous newsletter will note that there has been good inquiry and activity from overseas investors looking to buy in Dunedin. When the new legislation comes into effect they will be restricted to investing in new-build property.
A similar overseas buyer ban is in place in Australia. It’s been reported that there are several loopholes to the enforcement of the law there and it remains unclear how such a ban would work in New Zealand and who would be doing the practical enforcement.
Another proposed political measure is increasing the “brightline test” from two to five years. This means any sale of a non-principal residence within that time will be subject to tax on any profit. The two-year measure was introduced by the previous government and, along with other measures, has resulted in heat being taken out of hot markets, particularly Auckland, where quick flicks were commonplace when the market was rising rapidly.
To a large extent, increasing the test to five years is a little bit like the proverbial closing the barn door after the horse has bolted. It is likely to make investors think long-term when buying property, however, which has always been my advice, and should not do the residential investment market any harm at all.