It seems to be relationship property season here at Canterbury Legal, with things like pre-nuptial agreements a hot topic for clients. Maybe it’s the result of a lot of engagements and extra time with spouses over the New Year or Easter holidays. In any case, if you or someone you know needs assistance on that front, we’re primed to hit the ground running.

Apart from that, property remains a big focus for all, whether you’re renting, buying, investing, building or just wondering if your valuation will continue to climb.

There’s been a lot to think about on that front recently, so if you still have a thirst to learn more, this is our summary of what to take heed of.

Signing an Agreement for Sale and Purchase? Get a lawyer involved



Having a lawyer involved in a property transaction early on will help you in the long-term. Yes, we might be biased there, but there’s good reason to get our help.

Take Agreements for Sale and Purchase. There’ve been cases where people have misunderstood what they actually mean: thinking they’re just signing an offer, when they’re in fact entering into a binding contract.

Professional legal advice ensures you know what you’re getting into. We’ll help you manage costs, and understand what happens after you sign the document. It takes away some of that pre-settlement pressure, and helps ensure you’ve got everything sorted financially.

It's a perspective backed by the Government, and the Real Estate Authority and New Zealand Law Society, who recently called this kind of support "essential".

To learn more about the sale and purchase process and where you might need to call on external help, take a look through the excellent guide at settled.govt.nz.

Clarification needed on Government housing package



Last month the Government passed new rules relating to housing, including the removal of tax-deductible mortgage interest and an extended bright-line test, together with family home exemptions. It raises a few questions, such as who will be affected, and how will the family home exemption work?

These questions and other refinements are to be addressed in a consultation process, but at the moment it’s unclear who will be consulted, and how long it’ll all take.

Own family homes
If you buy a home after 27 March as your main residence:

• and it then changes from being your main residence
• and you then rent out for periods of more than 12 months at a time
• and you then sell

Then you’ll be taxed on the profit made.

This is a change from the previous situation. Until now, the bright-line test only applied where the home had been rented out 50% or more of the time it was owned.

Not all situations are as clear as this, for example, mixed-use homes where parts are let out to boarders, tenants or short-stay guests; or are used in part for commercial purposes. IRD will look at this on a case-by-case basis to assess the predominant use.

The Government is still to decide whether mortgage interest can be deducted for residential properties used as workplaces.

New builds
New builds will escape the 10 year bright-line test, but the five year rule still applies. This is in hopes of encouraging new development.

These may also escape the interest deductibility rules when owned by investors—but it’s still to be clarified.

There’s work to be done in the consultation process here, too. At the moment, the definition is intended to include properties purchased within a year of receiving their code compliance certificate. But what if a house has been bought off the plan, and the sale went unconditional before 27 March? Is it an existing property for interest-deductibility purposes? Or is it a new build subject to the five year bright-line test rather than the new 10 year-rule?

Clearly, there’s a lot to think about, and hopefully we’ll have additional clarity soon! In the meantime, if you need advice or a sounding board, we’re here to talk things through with you.
 
A quick look at the property market will further show how important clarity around tax is. CoreLogic’s House Price Index (HPI) shows that our annual property value growth rate has hit 16.1%, which is higher than it’s been in 15 years.

In Christchurch, our annual growth rate is now at 11.9%. The average property value is now $575,000. A year ago, it was only around $514,000. Mortgaged investors now represent 28% of purchases, up from 21% about two years’ ago.

Will that continue, particularly with the changes introduced by the Government? CoreLogic thinks so. "Despite the market being tipped further in the balance of first home buyers we're not expecting a significant exodus or pull-back from investors.”

"The long-term appeal of property investment remains - using debt to access a valuable asset and having 'someone else help pay off your mortgage' in a bid to provide passive income and wealth in retirement.

"Longer term, the appeal is likely to shift towards new builds. If this is the case, it should provide a variety of benefits, including increased investment demand for newly built homes as well as a boost to housing supply, which remains scarce."
 

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That’s it from us for April. As always, we’re just an email or phone call away for any questions, help or advice. We look forward to chatting next time.