Innholdsfortegnelse for November 2021 i NZ Property Investor

Lockdown has done little to dampen the national enthusiasm for property, however. The dearth of houses and high demand is continuing to drive up prices, with the national average in September sitting at $977,456, a whopping 26.3% increase year-on-year, only slightly down on the 26.6% year-on-year increase in August. But are there clouds on the horizon, set to dampen the flame of property values? A confluence of forces – proposed interest tax deductibility removal and interest rate increases – may seem like growth slowers, but is that really the case? Our lead story this month looks at the ways these two “interest issues” are likely to play out in the property market. The details around interest tax deductibility were announced in late September. They outlined the definition of a “new…

Build-to-rent proposals are being promoted as the solution to the lack of rental housing at the very same time as private investors are being forcefully expelled from the market. However, I can see many problems with these proposals. The bottom line is that residential landlording in New Zealand, despite popular belief, is and remains a low-return high-workload activity. Over many years I have seen a number of corporates grow enthusiastic about the idea of building a large portfolio of rentals, but then they have faded quietly away once the harsh light of economic reality sets in. As residential landlords, these build-to-rent entities will always be subject to the restrictions of the Residential Tenancies Act. It is all very well for New Ground Capital to state that “tenants are given a…

Registered nurse Miao Cao recalls a stark realisation she had early in her career. She was never going to achieve financial independence, or even the financial comfortability she wanted, if she relied solely on her career. She loved her job, but all around her she saw older colleagues struggle financially. “They didn’t own their own home. It made me scared. I thought: ‘I didn’t want to be in the same situation as them’,” she says. It just wasn’t enough. Since her early twenties she had dreamed of financial freedom. The financial ability to pursue her true loves, art collection and travel. But the question was: How? A Calculated Leap of Faith “Difficulty has forced me to be creative, and I’m very appreciative that it happened because it opened my horizons.”–…

HOUSE PRICES: SLOWING Although median residential house prices nationwide were up 15.4% to $795,000 in September compared to $689,000 a year ago, the gain was 6.5% down on the month of August. The REINZ House Price Index reached a new national high of 4,088. INTEREST RATES: UP The major trading banks are raising mortgage interest rates well above the .025% OCR increase. This is after sharp wholesale rate increases in the past few days after inflation jumped to 4.5%. OCR: UP The Reserve Bank has increased the OCR by 0.25% to 0.50% and indicated it will continue to lift gradually until it hits 2% in 2023. IMMIGRATION: DOWN Fewer immigrants are in New Zealand on work or student visas. The latest MBIE data show there were 177,873 people in the…

On September 28, Government released details around the changes that were announced in March to interest tax deductability. The announcement clarified the definition of a new build, as a home that received code of compliance after March 27 this year. It also announced that such properties would be exempt from interest deductability changes for 20 years after code of compliance was granted. The NZ Property Investors Federation (NZPIF) has called this clarifiction “a step in the right direction”. “However,” Sharon Cullwick, NZPIF executive officer contined, “NZPIF does not see how this will help tenants of older properties, who will ultimately have to pay for the extra costs put on landlords. It also will not help tenants.” There are a number of exemptions from the new law; including properties purpose-built for…

Last month, we speculated on the detail of the tax changes based on IRD commentary. Most people will now be aware that the bill heralding the changes has finally been released on the eve of the deductibility of interest being removed on October 1. Much of the detail was as anticipated with a couple of minor surprises. The first being that the definition of a new build will include anything gaining a CCC after March 27, 2020 rather than March 2021, effectively backdating this a year. Good news for people who finished a project after this date but leaving those with new builds finished before this with no interest deductibility. Another quirk is the 20-year timeline for deductibility that will be passed from owner to owner. This will create the…

With the obvious advantages given to those rental home providers who supply to community housing providers (CHPs), is this a viable option for your rental home? Well, that depends. Sure, you have the ability to continue to claim the interest as a deductible expense. However, there are some advantages and disadvantages that you need to be aware of and consider before deciding. WHAT IS A CHP? In 2011 rules and regulations changed allowing private non-government agencies and often not-for-profit organisations and/or charitable trusts to establish as CHPs. These CHPs range in size and cater for the specific needs of their clients (tenants). From 2013 these organisations were able to benefit from the same financial subsidies as Housing New Zealand (now Kainga Ora). Since this time the number and size of…

But entering the end game does not mean things suddenly stop. Momentum is still exceptionally strong in the housing market with high and rising fear of missing out (FOMO) and sellers gaining increasing market power over buyers. A monthly survey of real estate agents Alexander carries out in conjunction with REINZ showed in July, before the country was in lockdown, a gross 66% of agents nationwide and 59% in Auckland were observing FOMO on the part of buyers. In late-August the survey showed that immediately following lockdown nationwide FOMO rose to 71% and for Auckland it lifted to 67%. The most recent survey at the end of September showed nationwide FOMO at 72% and Auckland even higher at 79%. “Lockdown has engendered extra determination from buyers to make a purchase,…

MATTHEW GILLIGAN Matthew Gilligan is a property investor, developer and tax adviser. He is managing director of chartered accounting firm Gilligan Rowe & Associates, where he heads the specialist property and asset planning divisions. KRIS PEDERSEN Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. Phone 09 486 4719, www.krispedersenmortgages.co.nz MARK WITHERS Mark and his team specialise in advising on property-related transactions, valuation and restructure services, and tax planning. Withers Tsang phone 09 376 8860, www.wt.co.nz RYAN WEIR Ryan is owner of Propertyscouts Auckland Metro and has a half share of Propertyscouts NZ. He’s a member of PROMINZ and passionate about the property management industry and in particular raising industry standards. SHANE CAMPBELL A Partner in Wynn Williams’ Dispute Resolution…

‘At Squirrel, it is not uncommon for us to have clients with mortgage repayment plans through to the age of 70’ Over the long term, household debt cannot increase faster than incomes. Yet in the past year household debt has grown 12% while household incomes have increased by 4%. This imbalance is out of whack, and it is not sustainable. Borrowers can only ever afford a certain percentage of their after-tax income to service debt. It is easier to understand at a single household level, but it’s also true for New Zealand Inc. Looking at historical data suggests that the maximum is about 45% of our disposable income. That is high by international standards and unsurprisingly supports the notion of us being heavily invested in property as our “one” asset.…

Always, always get at least three quotes. You will not necessarily go with the cheapest quote every time as you need to take other factors into account such as the reliability of the contractor, the standard of their work, timeframe and if you get along with them. Quotes are generally better than estimates, especially for older homes where there can be hidden costs that have a nasty reputation for blowing the budget. Successful property investors and mentors Ron Hoy Fong and Jason Tan have built impressive property portfolios and have a wealth of investment strategies to make the Auckland property market accessible for everyday people. For more information on our one-to-one mentoring programmes call Jason today. Jason Tan | 021 410 150 | www.ronovationz.com…

The two IRD examples below explain how the tax deductibility changes will work in practice. The first focussing on an investor purchasing before March 27, 2021 and the second on or after this date. The tax deductibility rule means that for investors who borrowed to acquire residential property before March 27, 2021, interest deductions will be phased out between October 1, 2021 and March 31, 2025. EXAMPLE ONE Ana acquired a rental property in 2017. She is charged $1,250 interest each month on her mortgage ($7,500 every six months). Ana has a standard balance date, ending March 31. For the 2021-22 income year Ana claims 100% of the interest charged between April 1, 2021 and September 30, 2021, which is $7,500. Between October 1, and March 31, 2022 Ana is…

‘There were two sales and then repurchases and the yield shift equated to a gross cashflow increase of more than $50,000 for this investor’ A couple of years ago I was approached by an investor who had held some properties for several years but wasn’t getting much of an income from them. We ran the numbers and found that his yields vs current market values were quite low. The properties were standalone homes in good condition and made more sense to home buyers than as investment properties in the then current market. Because our client had bought well originally and had built up to a strong equity position, he had options. We agreed on a strategy to sell down properties that made the least sense as an investment (if he…

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 Napier and Hastings is dominated by houses. Of the 501 properties recently available for rent, 429 were houses (86%), with 63 flats (12%), and only nine apartments (2%).…

NORTHLAND NEXT MEETING: Wednesday November 24, 7pm at the Distinction Hotel, Riverside Drive, Whangarei. TOPIC: TBA MEMBERSHIP: $180 single or $210 couple; includes subscription to the NZ Property Investor and NZPIF discount card, plus local trade discounts. Please email npiacontact@gmail.com for more information. PO Box 1640, Whangarei. AUCKLAND NEXT MEETING: APIA hosts 100+ meetings for its members each year. Go to www.apia.org.nz/events for details on upcoming meetings. MEMBERSHIP: APIA memberships start from $75 and can be purchased on www.apia.org.nz/join. Full memberships include a free subscription to the NZ Property Investor, networking opportunities at over 100 events throughout the year, an excellent discount card, free subscription to APIA TV, and many more. For more information visit www.apia.org.nz/join. WAIKATO NEXT MEETING: Wednesday November 10, 7pm for a 7.30pm start at the Hamilton…

During a conversation with the employee, Joan Selvam got frustrated and said, “You are useless, you have done nothing to help me! I’m gonna f***ing kill you.” The council employee giving evidence to the tribunal said she was intimidated by Selvam and considered the threat had substance as Selvam and her gang affiliates presented a risk. In an earlier hearing, Selvam acknowledged that she had been abusive but denied threatening to kill the employee. Selvam told the tribunal she was staying off alcohol and drugs, and was taking steps to turn her life around. The council, who is her landlord, told the tribunal it had concerns regarding Selvam’s behaviour which it said had been ongoing since the beginning of the tenancy. Employees had been working with her, her probation officer…

In the last few months (since the first-rate hikes in the middle of the year) we’ve seen numerous clients opt for fixing their mortgages, and in many cases fixing for the longer term (3-5 years). This of course isn’t advice, and there is most certainly not a one-size-fits-all model, however it has become increasingly apparent that borrowers are now more and more aware of the direction interest rates are going – and are in a position where they want to lock in some certainty in the coming years. This is a very different sentiment to the one borrowers had 12 months ago, where in many cases they would simply chase the lower rate. Looking at the spread of interest rates in the table below, you can see rate increases across…

‘If the market continues to slow, then we are likely to see the RBNZ lift their restrictions (slowly)’ LENDING CRITERIA As lenders continue to make changes to comply with amendments to the Credit Contracts and Consumer Finance Act (CCCFA), along with increasing interest rates, we can expect to find that lending will become tighter for a period of time. For those who will still be able to get lending, this is great news as there will be fewer buyers to compete with in the property market. For those who won’t be able to get lending, talk to your mortgage adviser to see what you can do to change this. It could be as simple as reducing your credit card limit, or watching your spending for a few months. RBNZ RESTRICTIONS…

On the back of the Insulation Regulations 2016, the Healthy Homes standards (HHS) was released in 2019. It provided a far more comprehensive overview and expectation for the living standards across rental properties in New Zealand. The HHS covers five areas of the property: ventilation, draughts, drainage, insulation and heating. Even though the Insulation Regulations 2016 received Royal Assent just three years earlier, the expectation for insulation under the new HHS saw the minimum standard in ceiling insulation move from 90mm to 120mm. We asked why in frustration had the level not been set initially at 120mm (especially as this coincided with the Building Code at the time), and there was never any plausible explanation provided. I suppose retrospect is a beautiful thing. Almost two years since the HHS received…

1 HAUMOANA/TE AWANGA Popular with tenants looking for a relaxed, rustic beachside lifestyle and semi-rural feel. Easy commute to Hastings or Napier. Lots of enquiries to rent in this area. 2 HAVELOCK NORTH Upper-end of Hastings market, wide range of properties from million dollar houses on hills to more affordable houses on flat. Good demand from executives. 3 MAYFAIR/PARKVALE A popular area with tenants for mix of affordable housing and good schooling options. Area includes Windsor Park with Splash Planet and Mega Shopping Centre. 4 FRIMLEY Good mix of quality new homes and established older homes, popular with professionals and families. Close proximity to Hawke’s Bay Regional Hospital. 5 ST LEONARDS/CENTRAL CITY Good mix of housing, safe and popular for range of tenants. Tenants pay premium for easy walking distances…