Ring-fencing law changes – what do they mean for you?

We know that it can be stressful being a property owner and landlord. Being experienced investors ourselves, many of our property managers understand the feeling of balancing a very busy plate! That’s why we like to keep our clients aware of changes in the property world that might affect them.

You may already know about changes to the ring-fencing law that happened earlier this year. Changes were put into force on April 1st 2019 to make conditions better for first home buyers. While there are a lot of aspects that make up this law, there are a few changes which are of particular importance to rental property owners.

Losses are no longer deductible
The most important change to note in the ring-fencing law is that rental property owners can no longer deduct their property losses against any other income. Previously, if any of your rental properties weren’t making a profit (like if your rental income was less than the expenses to maintain that property), you could offset that loss against any other source of income – such as business income or wages.

What the changes mean
First home owners haven’t had access to the same tax breaks property owners did, meaning it was harder to initially get into the property market. The government has made this change in an attempt to level the property playing field and encourage people to buy houses that – theoretically – should be at lower prices.

Ultimately, we know that New Zealanders need housing, and they always will. The government knows this too, and are making the changes they feel are right to get more people into their own homes.

Options for owners
If you know that your rental property is running at a loss, there are a few options you could consider.

Raising the rent of your property to cover your loss – this may take some time, but in our experience, rent increases will happen eventually after a law change like this
Absorb the loss to apply to any future profit
Sell your rental property

We realise that this can be a lot of new information to understand. Tackling a property that is making a loss is not easy, and nor should decisions be made lightly. If you have any questions or want to discuss more about what these changes mean for you, we are always available to chat. Get in touch with a property manager or feel free to reach out to Natalie, our general manager, on 021 1311 203.