Innholdsfortegnelse for May 2021 i NZ Property Investor

Turning back the clocks to mid-2020, we saw Covid-19 and lockdown, rental freezes and experts predicting property price plummets. A year on the market is soaring, with median prices up nationwide by nearly 25% year-on-year (according to REINZ data for April). Landlords have been racing against the clock to get their homes up to standard for the Healthy Homes deadline of July 1. And the Residential Tenancies Amendment Act came into full force on February 11, including the controversial axing of the no-cause tenancy termination provision and roll over of fixed-term tenancies to periodic at the end of the term. Then, on March 23, the announcement of the extension to the bright-line test from five to 10 years, and the removal of interest deductibility on residential investments from October 1.…

REINZ HOUSE PRICES: UP March sales continued at a peak buying rate for investors and the median price across the country rose 24.3% to $826,300 – a new record high and a $46,300 jump since February. INTEREST RATES: UP HSBC has ended its 12 and 18 month 1.99% fixed home loan offers, raising them to 2.25% after a two month run at the unusually low level. Only Heartland Bank now offers a sub-2% fixed mortgage rate. OCR: HOLDING The Reserve Bank held the OCR at 0.25% – the rate it has been at for a year. IMMIGRATION: DOWN In the year ended February migrant arrivals were down 72.5% to 49,600, migrant departures were down 66% to 32,100 because of Covid-19 border restrictions and the annual migration gain toppled down to 17,400…

Art Deco homes are prized for their style and durability. So, when investor Michelle Swinbourne saw a 1930’s duplex for sale in a popular Palmerston North suburb, she jumped at the chance to add to her portfolio. The buy-and-hold investor has been in the property investment business for over three years and has experience in renovation. She knew that one half of the duplex would need a radical makeover, with a tenant in place for over 18 years (and no work done on the place since he’d been there). She had a big job on her hands. Fortunately, the other side of the duplex had been renovated in the past ten years and wouldn’t require any additional work. WINNING BID As a cash buyer who was prepared to take on…

‘Expert independent financial advice is more important now than ever’ A lot has happened since the last issue! There have been a number of major changes that will affect many property investors across the country. Some of these changes may even have you questioning whether or not it is still worth it. The biggest changes are the extension of the bright-line test for properties purchased after March 27, 2021, and the removal of tax deductibility for the interest on rental properties. Do these changes mean that property investment will no longer work? Of course not. The way that we invest in property might change (it will now be more important to focus on after tax cash flow than ever before), but property investment will always be the best way for…

‘New builds look attractive, but not as attractive as commercial, where there is no bright-line and no loss ring fencing’ By now, the shock of the Government’s move to phase out the deductibility of interest for residential investors will be sinking in. To refer to this change as the closing of a tax loophole demonstrates naivety or manipulation of the truth. The ability to deduct interest on the financing of an income-earning asset is a foundation principal of our tax system. The move to extend the bright-line to 10 years and create a backdoor CGT on residential land was a bit like the death of an elderly relative – not unexpected but still unwelcome. National’s stated purpose with the two-year bright-line was to strengthen the intent provisions. Labour was not…

NATIONAL RENTAL PRICE MOVEMENT This map represents change in the average rental price between the months of March 2020 and March 2021, based on figures from the Ministry of Business, Innovation & Employment. RENTAL SNAPSHOT Median house rents of the dominant dwelling type for the area EXPLANATION OF STATISTICAL TERMS No. of Properties: Total number of residential properties No. of Bonds: Total number of bonds lodged in last three months Median Rent: Weekly rent based on the bonds lodged in the latest three months Rent Quartile Range: Inter-quartile range of weekly rent based on the bonds lodged in the latest three months Median Value: The median value of properties in the group based on estimating the current market value of each property using our E-Valuer at the end of the…

1 Scrapping tax deductibility not the way to go Limiting tax deductibility for property investors’ mortgage interest would be a better game changer than scrapping it altogether, says Westpac acting chief economist Michael Gordon. 2 Govt whacks property investors The Government has announced a range of new measures to tackle the housing crisis, including an extension of the bright-line test to 10 years and the removal of interest deductibility, as the clampdown on investors continues. 3 The good, the bad and the ugly The Government’s housing policy is full of good, bad and plain ugly. NZ Property Investor magazine publisher Philip Macalister explains. 4 Years before changes make any difference The Government’s crackdown on residential property investors through an extension of the bright-line test and removal of interest deductibility will…

When Michael Gemmell left his Whanganui flat in a state of disrepair (and minus a smoke alarm) Inspire Property Management claimed damages through the Tenancy Tribunal. The property manager, Roxanne Ditchfield, presented evidence that when the flat was inspected after the tenancy ended, several holes where found in the walls, patched up with makeshift repairs. These needed to be repaired again and the walls needed to be repainted. The curtains and blinds in the house were mould damaged and smelled of cigarette smoke and needed to be replaced. There was a smoke alarm missing, the key was not returned and there was rubbish left to be removed. In the hearing documents, adjudicator J Greene pointed to the legal definition of “careless damage”. This states that tenants are liable for the…

The big news for the housing market that’s been hard to ignore is the removal of interest deductibility. Whatever your point of view, the bigger problem is that a government can impose such a big policy change without analysing the downstream impact on the economy. For any government, or any business for that matter, this is simply reckless. THE ULTRA-RICH OWN COMMERCIAL PROPERTY AND LAND BANKS They don’t buy residential houses and they definitely don’t buy residential properties given the added burden of Healthy Homes or tenant-friendly law. And whilst it set out to burn effigies of cardigan-wearing property investors, the Government’s housing policy still didn’t address the fundamental issue of affordability. Roughly half of our population cannot afford to buy a house, and nothing from the announcement changes that.…

The goalposts have shifted, again. The Government extension of the bright-line test to 10 years, coupled with the removal of investors’ ability to offset their mortgage interest payments against rent received, marks the latest instalment in a seemingly endless succession of changes to property investment law. It’s been met with shock and outrage from many. There are fears that “mum and dad” investors will no longer be able to afford to keep their retirement dreams alive, as thousands of dollars are added to their annual expenditure. Aimed at addressing the vertiginous rise of property prices since the removal of LVRs last year (due to fears around a bottom out after Covid-19), these measures come in the wake of increases in LVRs, which moved to 30% on March 1, increasing to…

‘Council will charge fees to allow connection to the existing wastewater and stormwater reticulation, which is usually covered in the development contributions’ When you are undertaking subdivision and building developments, there are typically a lot of “moving parts”. The complexity of these developments increases exponentially with the size of the project. An engineering aspect of subdivision and building developments, which is often taken for granted by novice developers, is the ability to provide wastewater, stormwater and potable (drinking) water services to the site. This is referred to as the “serviceability” of the site, and it is often this serviceability which dictates the viability of the development. If you are undertaking subdivision developments, council will require, as a condition of subdivision consent, that you provide suitable wastewater, stormwater and potable water…

PROPERTY INVESTMENT & EDUCATION WEBINAR , available on demand or via Zoom webinar. Hosted by Gilligan Rowe & Associates. Free to attend. For more information and to register, please visit https://www.gra.co.nz/events/property-investment-seminars or phone +64 9 522 7955. PROPERTY SCHOOL 7-MODULE ONLINE COURSE, available on demand or via Zoom webinar. Hosted by Gilligan Rowe & Associates. Includes over 12 hours of videos, articles and quizzes. Cost is just $595. For more information and to register: https://www.gra.co.nz/events/gra-property-school or phone +64 9 522 7955. For more information about listing your event, please contact Stephanie Bryant at stephanie@propertyinvestor. co.nz Last date for listings in June issue is May 6.…

Investor demand has been a major booster of house prices, he says. The proportion of bank mortgage lending to investors has remained essentially unchanged over the past four years. “In the existing low interest rate environment, investors’ search for yield and capital gains on rental properties has underpinned rapid increases in house prices, but the Government’s plans to scrap mortgage interest deductibility against rental income is going to significantly reduce the prices investors are willing to pay for houses,” says Ranchhod. Westpac’s economists have frequently highlighted financial considerations, such as rental yields, mortgage rates and tax, play a bigger role in determining what prospective buyers will pay for housing than physical factors such as supply. Up until now, says Ranchhod, the tax treatment of mortgage interest costs has given leveraged…

It’s a new financial year and we have certainly seen some very “interesting” changes in the property market recently – particularly in light of announcements on March 23 from the Government. Investors seem to be getting hit hard with many of these changes, and at this point it becomes even more important to be all over your profit and loss statement to figure out where costs can be saved if looking to hold onto property for the long term. I did find it interesting that there are many more cash buyers out there currently, but still the overwhelming majority of people carry mortgage debt due to the fact that property as an asset class is so expensive. While there could be more potential changes announced in May (Financial Stability Report…

For residential investment property acquired on or after March 27, 2021, a 10 year bright-line test is now in place. There will be no interest deductions for residential rental property acquired on or after March 27, 2021. For already acquired properties there will be a phase out of deductions over four years. The bright-line period will not extend to new builds. There will be consultation around the definition of new builds, and whether they will be permenently exempt from interest deductions.…

Residential property investors have been hit with a plethora of changes, particularly the extension of the bright-line test to 10 years and the unexpected removal of mortgage interest deductibility. The prediction certainly seems to be that there will be an exiting of residential property investors, who supply over 80% of all rental properties to the market. Using the Government’s favourite terminology, this will now be “the new normal”, and all that is left is for investors to “pivot” to the next opportunity. In my last article, I pointed out the benefits of investing in commercial property as opposed to residential. I would now like to talk about the differences between commercial property investment in large cities versus provincial towns. One of the significant advantages of provincial towns is the yields…

‘Change creates opportunity too, and we see now in this new market that less investors buying means there is less competition’ Last year when I purchased an investment property in Christchurch, I paid a professional property finder (someone from our own iFindProperty team) to source the investment for me. It was cashflow positive and I’ve worked out that even with the inability to depreciate the interest in the future, this property will still be cashflow positive … albeit not as much. So, a good outcome. Also last year: my business partner Nick and I purchased a property in our own town of Rotorua. We know the market and we went cash unconditional to get a good deal. Good story so far … Then we decided to spend a lot of…

Property investors make up a significant share of buyers in the NZ residential housing market, creating competition for first-home buyers. In an effort to “tilt the balance”, the Government unveiled its plan on March 23 to help first home buyers into the market. With a strong focus on turning down the heat in the market, two key changes were announced to reduce investor interest. 1. The bright-line test has been extended to 10 years. This means that any gains made from selling an investment property purchased on or after March 27, 2021 and sold within 10 years of purchase will encounter an effective capital gains tax. 2. The Government will remove the ability for property investors to deduct loan interest progressively over the next four years. This change is not…

THE DATA Rental data is sourced from the Ministry of Business, Innovation and Employment based on rental bonds lodged. This data is supplied to us grouped into geographic areas based on statistical area units used by Statistics NZ for the census and as a result do not always match well with common usage suburb names. The rental data for each area is matched to property price information from our database to determine property prices and therefore yield. The yield is calculated as the annualised rental income divided by the median property value calculated using our E-Valuer. MARKET COMPOSITION The rental market across Nelson and Tasman has recently been dominated by houses, as tends to be the case in most parts of the country. Of the 436 properties recently on the…

The recent Government housing policies appear to have been implemented without much information about the likely outcomes. In order to fill the information gap, the New Zealand Property Investors Federation (NZPIF) conducted a survey to see how these changes will affect the rental property industry. These changes included an extension to the bright-line test, removal of mortgage interest deductibility as an expense for residential investment properties and changes to rent increases. NZPIF conducted a survey over five days and there were 1,719 respondents, both members and non-members. SUMMARY OF CHANGES Bright-line test: • increased from five to 10 years • excludes new builds (definition to be consulted on) • applied to property acquired on or after March 27, 2021 • main homes and inherited property remain exempt, although some changes…