Innholdsfortegnelse for April 2022 i NZ Property Investor

Tax — it’s one of those nuanced topics that are hard to understand, but vital to get correct. In the past year interest deductibility (or the removal of it) has been the headline tax issue for investors, and as the tax year ends the reality of this regulatory change has come to bite. Investors nationwide will be feeling the effect of this change: whether it will lead to a sell-off (as some have predicted) is uncertain, but it’s definitely going to be a squeeze for many. Our columnist accountant Mark Withers (from Withers Tsang) has taken time out of his hectic schedule to explain the basics of tax from an investors’ point of view. He says there are three key areas that investors need to be aware of when it…

In the most recent month there have been a lot of changes that are likely to have an effect on the property market and the economy as a whole. Starting things off we look to the recent official cash rate review in February, which was an increase of 0.25%, the third consecutive increase at this amount putting us at 1% at the time of writing. This is the first time this has happened since 2014 and is reflective of the current inflationary pressures we face that the RBNZ is mandated to oversee. There are various forecasts for the coming OCR reviews with commentators suggesting we may see a 0.50% increase in one or two of the next reviews in coming months. If this does eventuate it would be the first…

Raj and his wife Aiswarya have been working together as property investors since the mid-2010s, and it’s been a real rags to riches story. Raj had incurred huge debts as a student and had a dismal credit rating, but extremely hard work, savings, and a fair amount of resilience has seen the couple turn their fortunes around. In fact they have been so successful they recently won the Waikato round of The Deal, New Zealand’s first reality television-type show dedicated to property investors.…

THE SITUATION Manu is very successful. He’s 37, and when we reviewed his property portfolio, he had 6 investment properties. When we sat down for the review, he had two goals. First, he wanted to see how the Government’s interest deductibility tax changes would impact his portfolio. But then his ultimate goal was to retire early and replace his income through property. That’s no small task, given that he’s a high-income earner and pulls in $350,000 annually. For any new property investors reading this, bear in mind Manu is not your typical investor. Very few people own this many investments and earn that sort of money by 37. So if you’re not there yet, that’s normal. If you’re in a similar position, well done. THE CHALLENGES Based on our forecasts,…

Despite numerous submissions, only minor changes have been made to the bright-line rules by Parliament’s Finance and Expenditure Committee when reporting back on the Taxation and Remedial Matters Bill. While the changes have been welcomed by Chartered Accountants Australia and New Zealand (CAANZ), they still leave several traps, says New Zealand tax leader John Cuthbertson. They are still at the margins, and those selling their homes need to be aware that traps still abound, he says. “But a little bit of leniency is provided for construction of the main home.” Where a new main home takes more than 12 months to build, potentially exposing the build to the bright-line, a new “reasonable time” test will allow the construction period to be counted as “main home days”. There is still ambiguity…

A Rotorua landlord was surprised to find ETB Realty let his property to a tenant who had to pay exemplary damages for smoking methamphetamine at her previous flat also rented to her by the company. It wasn’t until halfway though his tenancy that landlord Martin Bader became aware Nasya Burton had been ordered by the Tenancy Tribunal to pay exemplary damages of $770 to her previous landlords for smoking meth at their Sunnybrook property. A subsequent test at his Western Heights property clearly showed meth had been used at the premises during the tenancy. Burton’s tenancy at Bader’s Western Heights property was short-lived. It was ended by tribunal order after 3.5 months when she abandoned the premises. ETB Realty then applied to the tribunal for exemplary damages for unlawful use,…

HOUSE PRICES: UP In the month from January to February this year the national median price rose from $880,000 to $885,000, giving an annual gain of 13.5%. It is the third month in a row the median was below the November peak of $920,143. The median residential property price for New Zealand, excluding Auckland, increased 20.6% from $651,000 in February 2021 to $785,000 – a new record high. OCR: UP The Reserve Bank has lifted the official cash rate (OCR) by 25 basis points to 1%. The Reserve Bank is now forecasting the OCR to peak above 3.25% by 2024. INTEREST RATES: UP Mortgage rates have responded to the OCR increase. ASB and Westpac recently raised home loan interest rates, although by a smaller amount. Both banks took a cue…

‘Numbers that you have researched and layered into a budget will not lie to you’ Maori culture is woven around shared wisdom, often handed on verbally using proverbs, or whakatauki. These proverbs are designed to illustrate and teach principals and ideas that are relevant to all cultures, not just Maori. But taking learnings from our own language, Te Reo, offers a special resonance for Kiwis. The whakatauki tuwhitia te hopo, meaning overcome your fears, is very empowering. It leads to action that can start a hikoi, or journey, towards a goal. At present we are all witnessing, and sharing fear. Uncertainty breeds fear, and often reactions to it can create more fear. The pandemic is a case in point. The government’s approach to the fear we all felt was to…

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 North Shore’s rental market is dominated by houses, with lesser numbers of apartments and flats. Of the 1,161 properties recently for rent, 81% have been houses (942), with 12% apartments (135), and…

The omnibus of taxation changes, rightfully named the Taxation (Annual Rates for 2021-22, GST, and Remedial Matters) Bill, was passed by the committee of the whole House on March 17. It is expected to go through a third reading and get Royal Assent soon after. This bill includes the dreaded removal of mortgage interest tax deductibility for property sector residential property investors. It is a tax specifically for the estimated 200,000 providers of residential rental properties, who are assumed to have bank loans. This tax has the potential to bring in a $1.81 billion fiscal gain for the government over the 2021-2025 financial years. (NB, this figure was derived when interest rates were about 2%, so as interest increases so does this fiscal gain). When announced in March 2021, government…

There are bigger forces at play than just the Credit Contracts and Consumer Finance Act (CCCFA), such as rapidly rising inflation here and abroad when it comes to the housing market, says Jeremy Couchman, Kiwibank’s senior economist. “Omicron is pushing up domestic generated inflation in an already capacity constrained economy. Meanwhile, the war in Ukraine has seen commodity prices, such as oil, surge. “The RBNZ’s fight to rein in inflation is likely to see mortgage rates rise further and they are already being adjusted upwards to this new reality,” says Couchman. The CCCFA’s proposed changes include removing regular “savings” and “investments” from would-be borrowers’ expenses that were measured against their intended loan. They also reduce the need for lenders to comb through bank statements of all borrowers — an apparent…

Q I own several standalone, freehold properties in Kohimarama (Auckland). There are a number of leasehold properties in the area. Is it legally possible to convert my properties to leasehold? I am thinking of selling the properties, but retaining the land. A This is a good question. It invites a brief explanation of the types of ways in which we own property in New Zealand. A fee simple estate is the closest land concept we have to complete ownership (sometimes called Allodial title). A leasehold estate is where there is an underlying owner (the landlord) and someone who obtains a right to occupation and exclusive possession by something less than complete ownership. By this mechanism a lessee or a tenant in NZ obtains an interest in the land, but does…

As far as investments go Kiwis have worshipped at the altar of the property gods for a while now. And for the bulk of us, who have started our investment journey in the last 30 years, it’s no wonder. But with all the headwinds facing the market at the moment is that blind faith still well placed? Over the years I’ve heard some pretty bizarre theories about what drives house price growth. In reality it comes down to two things: Gradually increasing household income and, more importantly, declining mortgage or interest rates. Since the late 1980s mortgage rates have dropped from around 11% to 2% – and when the interest (or discount) rate on an asset is low, its value goes up. It’s simple economics. It’s not just property that’s…

Between 1998 and 2004 many homes in New Zealand were built with untreated radiata framing timber. Provided radiata stays dry, there typically isn’t a problem. However, when untreated radiata gets wet, it deteriorates quickly. Pre-1950s homes typically used native rimu for framing, which is also prone to rot when wet. While untreated timbers are particularly prone, almost all timbers deteriorate when exposed to moisture for long periods of time. Rot in exterior walls is typically the result of a failure in a home’s roof or cladding to keep water out. Leaking plumbing or wet area sealing are the other major causes. The level of deterioration depends on the length of time there has been water ingress for. Typically if a leak is identified and fixed within the first couple of…

‘Prenups are especially important to protect existing property brought into a relationship’ Aprenup, or to use its technical term “Contracting Out Agreement”, may be one of the most important documents you’ll ever sign. Approximately 10 per cent of couples have them, and they are becoming increasingly popular. A prenup allows you to contract out of the Property (Relationships) Act and set your own rules for division of property on the separation of a relationship and/or death. The act’s equal sharing provisions will generally apply unless you decide to “opt out” by entering a prenup. Not only can agreements be entered into between a husband and wife, but also civil union partners and de facto partners. Usually, they are signed before a relationship starts, although they can be signed during the…

‘We need shorter Tenancy Tribunal hearing times rather than longer ones’ In the February edition of this magazine I wrote an article stating this would be the year we would finally see steps towards regulation. A few weeks later, Associate Housing Minister Poto Williams finally announced discussion documents on what a regulated residential property management industry may look like. One of the big discussion points was whether property owners who manage their own properties should be covered. Personally, I am on the fence with that one. I like the idea of a landlord register, and some basic mandatory training for self-managing landlords would be good. However, if we make it too onerous, more landlords will vacate the market, leading to further supply shortages. However, for the point of this article,…

NORTHLAND NEXT MEETING: Wednesday, April 27, 7pm, Whangarei. Venue TBA. Contact: Mike on 021 388 885 (usual venue being renovated). TOPIC: TBA MEMBERSHIP: $180 single or $210 couple; includes many benefits. 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. For more information about the benefits visit www.apia.org.nz/join WAIKATO NEXT MEETING: Wednesday, April 13, 7pm for 7.30pm start at the Hamilton Working Mens’ Club Pavilion, 45 Commerce Street. Vaccine pass required on entry. TOPIC: Are you wanting to get more from your property business? More money, better operations, clearer direction and with less stress? Bob Weir, Small…