Policy polarisation impact on mortgage adviser and property investor vote

October’s election will have the biggest impact on property investors and mortgage advisers in decades.

The difference in housing policies between Labour and National is a divide so deep it will take years to untangle.

During the past six years of the Labour’s turn at the helm, it has taken away the ability for investors to use mortgage interest payments against rental income for tax deduction purposes, extended the Brightline test to 10 years, banned no-cause rental terminations, limited rent increases to once a year, introduced Healthy Homes legislation, increased tax on trusts, which many investors use to hold property assets, and allowed three units of three storeys high each on almost any residential section across the country without resource consent.

National has vowed if it is elected it will reinstate the tax deduction on investment property, pull the Brightline test back to two years, reverse no-cause terminations and the near-automatic rollover of fixed term tenancies into periodic tenancies, and pull out of the bi-partisan agreement with Labour on housing intensification. It also intends to push for more greenfields development.

Polarisation in policies

Kiwi Mortgages principal Rakesh Bansal says property investors are keenly watching the lead-up to the election depending on which side of the fence they are on.

He says investors favouring National are quite optimistic things will change if the party is elected.

If the Government doesn’t change at the election, Bansal says, the property market recovery could be slower.

“Most of the market is governed by economic factors, just not political decisions. However, if Labour is elected again the recovery could be slower in terms of sentiment but if the economic indicators go northwards, there will be a recovery.”

Bansal says politicians can either add or subdue sentiment by their actions.

Waiting to sell or hold

For iFind Property director and operations manager Nick Gentle the election will have the most effect of any ever held, for property investors and mortgage brokers.

Mortgage advisers have not escaped the aftermath of falling house sales with some exiting the industry as headwinds continue to hit the property market.

Some have had a more than 15% drop in settled loans, while the threat of recession and falling house prices has scared a lot of buyers off.

Investors are sitting on the fence waiting to sell or hold, Gentle says.

“It’s not just investor property holders, it’s builders, developers, everyone.

He says the biggest change investors want is the reversal of mortgage interest payments deductibility.

“Under Labour, for example if an investor has a new build and it is exempt from tax deductibility for 20 years, who are they going to sell it to at the end of 20 years because it no longer has any tax benefits. I think it lowers the value of everyone’s future assets.”

He says that the tax deductibility issue alone is turning people into one issue voters. It is probably what 300,000 voters will be doing after they get their accounting tax bills in the next three months and it will sting.

He doesn’t know how many investors will have to sell properties as the removal of tax deductibility is completed in two years, but he thinks quite a few.

If Labour is elected again, Gentle says it could possibly add more punishment and regulations against landlords, such as rent controls.

Shine back on property investment

Propertyscouts NZ director Ryan Weir says if the tax deductibility rules are changed under a National government, they will improve the cash flow for many investors. 

“Not only that, but it will put the shine back on property investment as an asset class because it has been getting hit time and time again by Labour policies,” he says. “It could also lead to higher prices as an asset class.”

He says it will also boost mortgage advisers, who recently will have been writing far fewer mortgages. “As they are paid on the number of mortgages they write they will be getting a bit of a pay cut.”

Weir says if Labour is re-elected it has underway the majority of housing legislation it wanted to make so he doesn’t think the party will have much more to introduce aside from the regulation of property managers.

“House prices will start to come back when the country has another Labour coalition, but not at the accelerated rate it would under a National-led Government. The changes in interest deductibility are such a game changer for investors”, he says.

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