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Changes to Property Purchase Rules coming on 1st October 2015

Over the last 6 months it has been pretty much impossible to escape the media commentary on housing in the Auckland region. Most commentaries acknowledge that the source of the problem is a lack of supply of properties, and there are now calls to turn the council owned golf courses into housing estates.

While this raises challenges with the 'green-ness' of the City, which is an international indicator of the quality of a city and its associated lifestyle, it could be a good solution to the supply and demand mismatch.

 

Looking carefully at the information coming out, it appears that while prices are continually increasing in the Auckland region (along with the associated local body rates), in most other parts of the country house prices are staying pretty much at the same level.

Two exceptions seem to be the Tauranga and Waikato regions.  The population of the Waikato region is anticipated to increase by 40% by 2053 - to 600,000 people, which will add pressure to the existing infrastructure and services.

A by product of the soaring prices of Auckland property is the introduction of various pieces of legislation.  There has not been much publicity about these changes, but they are important if you are buying or selling property, or if you own more than one property.

The following commentary is form Lewis' a legal firm in Cambridge and Hamilton that Moneyworks has a close association with, about the changes on 1st October 2015.  It is worth being aware of this information.

In addition, rules are changing in relation to how banks treat the ownership of income generating properties.  We are not sure at this stage whether these changes will end up with higher interest rates charged for income generating properties (whether they be a beach house, or investment property), or higher equity required or some other treatment.  However, it is important to be aware of these rule changes if you have a property that you generate income form.  In our opinion there are some well though out exclusions.  For more information on these proposed rule changes, check out this information on the Reserve Bank website:

Commentary from Lewis's

Buying or Selling Property?  Changes are coming - make sure you are ready.

On the 1st of October 2015 changes are coming that will affect the sale and purchase of residential property.

Currently going through the submission process is legislation expected to be law by 1st October 2015.

The proposed changes require:

  • Buyers and sellers of residential property to provide their IRD numbers and other details when transferring property.
  • There is an exemption if the property is the family home. This exemption currently does not apply to family homes held by a Trust
  • Those with tax residency in another country must provide their equivalent IRD from that country
  • All offshore persons must provide evidence of a New Zealand Bank Account in order to obtain an IRD number.

These proposed changes are intended to enable monitoring of the sale and purchase of residential property within 2 years, particularly by investors. The changes do not just affect the Auckland real estate market, but property transactions throughout New Zealand.

How these proposed changes may affect you:

  • Every property owned by a family trust will need an IRD number.  The IRD number of the trustees will not be sufficient
  • If you enter into an agreement for sale and purchase and decide you wish to nominate a purchaser such as a company or family trust, an IRD number will be required
  • It can take up to 2 weeks to open Bank accounts, longer if you do not have the required paper work in order.
  • It can also take up to 2 weeks for issue of an IRD number. Urgent requests can be made but it is expected IRD will not welcome a rush of urgent applications.

Property transactions will not be able to be completed if the new requirements are not met.  Without the required IRD number, your lawyer will not be able to sign and certify the Landonline e-dealing so settlement will not happen. This can have serious implications of you are the vendor relying on the sale funds to purchase another property.

Or if you are the purchaser, you will be in default with your vendor and the penalty interest provisions will apply with the possibility of cancellation and loss of deposit.

The majority of property transactions in NEw Zealand are completed under the standard ADLS sale and purchase agreement.  Currently it is not  proposed to update this standard agreement until after 1 October and the changes are in place.

So what can you do?

  • If you are selling a trust property and your family trust does not have an IRD number, you will need to apply for one, preferably prior to an agreement being entered into.
  • If you are looking at purchasing an investment property, talk to your lawyer and your accountant before you start the process and decide how you are going to own the property before you enter an agreement
  • Make sure the settlement date allows sufficient time for you to establish a family trust or incorporate a company and apply for an IRD number.  This is particularly important if buying at auction or multi-party situations where the date to settlement can be short.  Five working days is unlikely to be enough time.
  • Ask your real estate agent the question, does the other party, whether the vendor or the purchaser, have an IRD number or need to have one?  Has acceptable evidence been provided of this?

If you would like an introduction to Lewis's to assist you with your transactions, let us know by emailing here carey@moneyworks.co.nz.

If you have any thoughts or opinions that you would like to share, visit us at our Twitter, Facebook or Linked In pages, and comment.



 

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