6 Things You Need to Know About Residential Property Rules
Buying a home is one of the biggest decisions you will ever make in your life. It’s not only a financial investment, but it’s also a place to call your own, where you can raise your family and create memories that will last a lifetime. With so much at stake, it’s important to be well-informed about the process before you even start looking for houses.
From offer periods to due diligence, there are a lot of rules and regulations around buying residential property in New Zealand that you need to be aware of. Here are six of the most important ones:
Table of Contents
- 1 You Will Need to Pay Land Transfer Tax When You Purchase The Property
- 2 You May Need to Pay a “Bright-Line” Property Tax
- 3 Offers On Residential Properties Are Usually “Unconditional”
- 4 You Have a Ten-Day Due Diligence Period
- 5 There Is No Cooling-Off Period After You Have Signed The Contract
- 6 Zoning Affects What You Can Do With a Property
You Will Need to Pay Land Transfer Tax When You Purchase The Property
When you purchase a property in New Zealand, you will need to pay a land transfer tax. This is a government tax that is payable on all properties that are sold and transferred into new ownership. The amount of tax you will need to pay depends on the value of the property, with the current rates as follows:
- 0% on the first $200,000 of the property value
- 3% on the portion of the property value between $200,001 and $2 million
- 8.5% on the portion of the property value over $2 million
For most people, land transfer tax will be payable on the full value of the property. However, there are some exceptions, such as if you are a first-time home buyer.
You May Need to Pay a “Bright-Line” Property Tax
This is a new tax that was introduced in 2015 and applies to any properties that are sold within two years of being purchased. It is called the Bright-Line property rule and is designed to target speculators and investors who are flipping properties. The bright-line test does not apply in all cases, such as if the property was your main home or if you inherited it. However, if you do need to pay the tax, it is calculated at the rate of 33% of the capital gain on the property.
Depending on your circumstances, you may also need to pay income tax on any capital gains that you make from selling a property. This is something that you should discuss with your accountant or tax adviser.
Offers On Residential Properties Are Usually “Unconditional”
When you make an offer on a residential property in New Zealand, it’s generally assumed to be “unconditional”. This means that you are agreeing to purchase the property subject to the terms and conditions set out in the contract, without any further conditions or amendments.
If you do have any conditions that you want to include in your offer (for example, a condition that the sale is subject to you getting finance approval), then you will need to make this explicitly clear in your offer. Otherwise, the seller is not obliged to consider your offer.
You Have a Ten-Day Due Diligence Period
Once you have made an unconditional offer on a residential property and it has been accepted by the seller, you will then have a ten-day due diligence period. This is a crucial time when you need to do your homework and make sure that you are happy with the purchase. During the due diligence period, you should:
- Arrange a building inspection to check for any major structural issues
- Get a LIM report (if available) from the local council to find out more about the property
- Obtain quotes from different insurance companies to get an idea of how much it will cost to insure the property
- If you are planning on making any changes or renovations to the property, get quotes from tradies to see how much it will cost
- Make sure that you are happy with the results of the title search and that there are no outstanding issues with the property
If you have any concerns or queries during the due diligence period, be sure to raise them with your solicitor or conveyancer. Once the ten days are up, you will need to sign the contract and pay a deposit, at which point the sale will become binding.
There Is No Cooling-Off Period After You Have Signed The Contract
Contrary to popular belief, there is no cooling-off period after you have signed the contract and paid the deposit.
This means that once you have committed to buying a property, you cannot change your mind and back out of the sale, even if you have buyer’s remorse. The only exception to this rule is if you have included a special condition in your contract that allows you to back out (for example, if you are waiting on finance approval).
Zoning Affects What You Can Do With a Property
When you purchase a property, it will have a zoning designation that determines what you can and cannot do with the land. For example, a residential zone will usually only allow for houses to be built on the land, whereas an industrial zone will allow for factories and warehouses. It is important to check the zoning of a property before you purchase it as it could affect your plans for the future.
If you want to make changes to the land that is not in line with the existing zoning, you may need to apply for resource consent from your local council. This can be a lengthy and costly process, so it is best to avoid properties that are not zoned correctly for your needs.
These are just a few of the important rules that you need to be aware of when purchasing a property in New Zealand. Be sure to do your research and seek professional advice before making any decisions, as this will help you to avoid any costly mistakes.