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CoreLogic: What the shortened Brightline test means for the housing market

Following the Government’s announcement that they will shorten the Brightline test back to two years for all properties from 1st July 2024, CoreLogic Chief Property Economist Kelvin Davidson has made the below comment on what this means for the NZ property market:

“The Government yesterday reiterated once again that they will shorten the Brightline Test back to two years for all properties from 1st July 2024.

In effect, any property purchased before 1st July 2022 will then be off the hook for capital gains tax, regardless of the prevailing test period when it was bought.

“This change might bring back a few more investors to the market, given reduced risk that any rental property purchases will face capital gains tax. But it’s unlikely to be a major shift, given that some other key factors haven’t changed – namely low rental yields and high mortgage rates, meaning that significant top-ups out of other income are still required on a ‘typical’ investment purchase, whether a new-build or existing property.

“Of course, mortgage interest deductibility will be phased back in too, and that will help cashflow. But it’s not back to 100% for a while yet, and in the meantime, some investors may be taking the hit on cashflow just to avoid paying a hefty capital gains tax bill. Indeed, it wouldn’t be a surprise if the shorter Brightline Test actually drives some extra listings and sales from landlords, as they look to stop the top-ups and avoid a large tax bill at the same time.”

 

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