The property investment market is stirring, with full interest deductibility restored this year and a shorter bright-line test resetting the rules for landlords.
Experts say the simpler settings are giving investors more breathing room.
Careful planning, however, remains essential.
“We have reverted to full interest deductibility, which means that if you’ve borrowed to buy an investment property, all the interest payable on that mortgage is deductible, provided there’s a direct connection between the money borrowed and the rental income,” said Terry Baucher, director of Baucher Consulting, a specialist tax advisory firm.
Start your property search
David Grubb, Head of Banking and Valuation Risk at Valocity, said the changes were already visible in the data. Investors peaked as a share of the market in late 2020 at around 33%. By late 2022, that had dropped to 21% as deductibility rules tightened and interest rates rose.
“With reducing interest rates, 100% tax deductibility and maybe some anticipation of capital gains, the share has now picked up slightly to 23%,” he said.
ANZ Mobile Mortgage Manager Mike Tunai said the impact was also becoming clearer at a customer level.
“What I’m seeing more of are first-time investors, families who are upgrading to a new home, but instead of selling their existing property, they’re keeping it as a rental – previously they may have sold, but with the tax changes, holding on has become much more attractive to some customers,” he said.
“In early 2025, customers weren’t even talking about investment property, it just didn’t make financial sense. Now, with the tax changes, we’re getting a lot more enquiries. Both experienced investors and first-timers are feeling more comfortable about purchasing.”
While the rules are simpler, Baucher said good records were non-negotiable.
“Keep your mortgage documents and bank statements so you can show exactly what the loan was for, and remember, it’s only the interest that’s deductible, not the principal.”
He said common mistakes included deducting the full repayment amount instead of just the interest, or claiming interest on funds partly used for personal purposes.
The bright-line test has also been cut back. Since July 1, 2024, it applies only if a property is sold within two years.
“The bright-line period is now two years for all residential property. If you sell within two years, any gain will be taxed,” said Baucher.
But he warned a long-standing rule still applies: if you buy with the intent to sell, the gain is taxable no matter how long you hold the property.
Tunai said customers recognised the change but were more focused on the wider tax settings.
“The bright-line test was always in the background, but it wasn’t really the deal-breaker. Shortening the period has made things a little easier, but for most of our customers it’s the tax incentives that are the big drawcard.”
While the changes were good news for many, Baucher warned against rushing in.
“The temptation is to over-leverage. If terms are relaxed, you still need to ask: could I manage if rents only increased modestly? Prepare for the worst and hope for the best.”
Grubb said interest rates were a key factor in shaping investor sentiment. Deposit rates had fallen from about 6.1% in January 2024 to 3.7% in August 2025.
“This means savers may be considering switching their money to an investment property that shows a net return of a similar level or more, plus the potential for tax-free capital gains,” he said.
Currently, Auckland investors needed a capital gain of about 1.2% just to break even.
Grubb said even small movements in mortgage rates can shift the picture quickly. A drop of just a quarter of a percent, for example, can reduce the shortfall between rental income and expenses, making investment more attractive – particularly if paired with forecasts of capital gains.
Valocity has analysed the 23 largest centres across New Zealand. In late 2024, when interest rates were 5.8%, only Gisborne showed a positive return. Since then, six centres have risen above breakeven, and a further modest drop could see even more regions turning profitable.
While Auckland remains one of the lowest-return regions, Grubb said the national picture highlights how quickly investor sentiment can shift with even small changes in rates.
While Grubb pointed to the numbers, Tunai said ANZ’s focus with customers was on making sure lending was manageable and suits their needs.
“Everyone’s circumstances are different. We focus on making sure the lending is right for them and that they’re not put into financial hardship. For tax matters, we always encourage customers to seek independent advice from their accountant or lawyer.”
Thinking about property investment? ANZ’s team of Mobile Mortgage Managers could help you understand your options and make a plan that suits your goals. Talk with an ANZ Mobile Mortgage Manager or visit anz.co.nz.
ANZ lending criteria, terms, and fees apply. Minimum 30% deposit may apply to property investment lending. This material is general nature and is for information purposes only. The opinions in it are not financial, investment or tax advice. Please talk to ANZ if you need financial advice about your situation and goals. See ANZ’s financial advice provider disclosure at anz.co.nz/fapdisclosure.
