Article Credit: Kaylene Mckenzie
New Tenancy rule changes are a hot topic and some property owners are still coming to grips with how it affects them, and their investments. Paul is well across all current laws and any pending changes on the way, but we thought we should put together a summary of the rule changes coming!
Ending Tenancies
The changes, which are part of the National-Act coalition agreement, will include:
- Reintroducing 90-day ‘no cause’ terminations for periodic tenancies, meaning landlords can end a periodic tenancy without requiring a specific reason.
- Returning landlords’ notice periods for ending a periodic tenancy to 42 days where:
- they want to move themselves or a family member into the property, or
- the tenancy agreement notes the property is usually used to house employees, and they want to move an employee into the property, or
- where the property is subject to an unconditional agreement for sale requiring vacant possession.
- Returning tenants’ notice period for ending a periodic tenancy to 21 days.
- Reintroducing landlords’ ability to give notice to end a fixed-term tenancy at the end of the term without requiring a specific reason.
These planned changes should come into effect in May 2024.
Interest Deductibility
The interest deductibility rule relates to the mortgage interest rates on investors’ rental properties.
If someone owns a rental property that has a mortgage on it, the interest they pay on that mortgage can be deducted from their rental income when it’s time to calculate their taxes. This means they pay less tax because their taxable income is lower.
Originally a National-Act coalition agreement promised to restore interest deductibility with a 50% deduction in the 2023/24 financial year, followed by an 80% deduction in 2024/25 and 100% in 2025/26.
Now, the Government is promising landlords will be able to claim 80% of their interest expenses from April 1, 2024, and then 100% of those expenses from April 1, 2025. Landlords won’t be able to claim the expenses retrospectively.
Rent Reductions
So will we start seeing reduced rents? Unlikely.
CoreLogic’s Chief Economist Kelvin Davidson was interviewed on Breakfast recently and stated "it’s unlikely rental costs will fall". “You don’t tend to see rents go down,” he said. "Instead, rents will likely rise more slowly than they otherwise would have".
Davidson said migration is still high, putting pressure on the country’s rental stocks. “So, tax changes might favour landlords but there are a lot of other market forces that are pushing rents up.”Davidson also doesn’t expect to see an influx of property investors following these tax changes.
We would love to know your feedback on these changes and please get in touch if you would like more help understanding how these changes might affect you and your investment property. As always, we recommend talking to your accountant when needing financial advice for your investment properties.
Here's to great tenants, safe investments and stress free property management!
Kaylene McKenzie - Pukeko Palmy