The Reserve Bank had planned to bring in new rules on 30th June regarding the classification of rental property owners with five or more properties. The consequences of these changes were highlighted in the May newsletter, which you can view here.
A summary of the submissions about these proposed changes has now been published by the Reserve Bank. Read the full publication here. (The relevent sections are 31 to 35).
Six banks had made submissions about these proposed changes, two came from organisations representing property investment activity and a private individual made a submission.
A number of points were raised in these submissions. Some sought clarification of terminology used in the Reserve Bank’s new rules. For example what did the word “predominantly” mean when used in the phrase “the loan is serviced predominantly from the rental income the properties generate”. Predominantly is now said to mean more than 50%.
Other submissions highlighted the difficulty of identifying how many properties existing customers have and the privacy issues. Both banks and individuals were concerned about the increase cost to implement the new rules and how this might be passed on rental property owners and ultimately tenants. Above all the banks indicated that a considerable lead in time (possibly up to 18 months) would be needed to develop Reserve Bank approved internal models for managing the new asset class. Staff training could take six to nine months.
A number of other matters were raised, such as how should banks treat customers who were involved in part-ownership structures or if all five properties needed to be located in New Zealand.
The Reserve Bank understands the technical difficulties pointed out by the banks and has delayed its introduction until December 2014.