A comprehensive Commercial Overview

Thursday, 7 December 2023

With the echoes of the recent general election still resonating, a national-led government has firmly grasped the baton of power.

As the business sector eagerly anticipates the unfolding of promises made on the campaign trail, there's a palpable curiosity about which pre-election "non-negotiables" are now on the negotiating table. The quest for a workable and stable coalition government introduces an intriguing chapter as businesses brace themselves to navigate the twists and turns of political commitments in this post-election landscape.

While National, Act and New Zealand First are fundamentally on the same page regarding property investment and development, there are some policies that they disagree on that will need negotiation and agreement.

National and Act campaigned against the previous government's "war" on landlords' stance (especially against residential landlords). They vowed to rescind many of the property laws Labour introduced over their past two terms of parliament. These include removing the ability to deduct mortgage interest on rental properties from taxes, extending the Bright-Line test, which taxes profits from the sale of an investment property for ten years and removing the ban on the ability to issue 90-day "no-clause" termination notices. While National would return the Bright-Line test to two years, ACT said it would remove it entirely. Both parties would reinstate "no cause" terminations.

While National is sympathetic to tax depreciation on residential properties, their recent announcement to remove the tax depreciation for commercial buildings hasn't impressed the Commercial sector. It has been met with disappointment and concern by Property Council New Zealand and commercial building owners alike. While the policy aligns with Labour's, many owners believe removing depreciation will have a flow-on effect for ageing buildings and could see a reduction in new development projects in the pipeline.

Property Council Chief Executive Leonie Freeman says, "Removing depreciation is a raid on long-term maintenance funds for buildings and increases the risk of rundown or even derelict buildings across the country."

"If depreciation is removed, property owners tell us they will have to reprioritise expenditure, which, when added to rising costs such as insurance, mortgage and property rate rises, will likely cause rent rises for businesses. National and Labour's proposed policies come with a price tag of half a billion dollars for the property sector, and both parties fail to see the consequential impacts," she said.

The policy is set to generate $525 million a year in revenue for the government coffers.

Both residential and commercial property owners could depreciate their buildings until the John Key-led government removed them in 2010. In 2020, Labour reinstated it for commercial buildings only as a Covid economic stimulus measure.

Other tax changes National are proposing to introduce include a review of tax thresholds, with the top 39 percent tax rate for people earning more than $180,000 per year to remain in place; several additional measures to provide tax relief for families (such as a child tax credit of up to $150 a fortnight for families earning up to $140,000 per year), and a new foreign buyers tax of 15 percent on properties over $2 million.

High-interest rates are also cooling the investment market, with ASB Chief Economist Nick Tuffley predicting interest rates will remain at current levels until at least mid-2024.

On a positive note, the streamlining of the Resource Management Act should see the resource consenting process simplified and the consenting process speed up. This will be music to the ears of developers who, for decades, have had to work with an outdated, clunky system that was anything but development-friendly.

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With the general election done and dusted and a National-led government now holding the reigns of power, the business sector is waiting to find out what promises made during the election will be honoured and what "non-negotiables" pre-election were now "negotiable" to ensure a workable and stable coalition government.
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