Innholdsfortegnelse for August 2022 i NZ Property Investor

Life is all about perspective. It’s all too easy to slip into the mire of pessimism: look at the rising rates of Covid; the overheating planet; skyrocketing inflation; the upwards march of interest rates; and feel helpless. But there are always other ways of looking at things. In this issue of New Zealand Property Investor magazine we profile an investor with a small portfolio but a huge amount of optimism. Jenny Zhang is new to the New Zealand market, but has taken all the opportunities offered. She bought a small apartment in Morningside, Auckland in 2020, which has increased in value by hundreds of thousands due to the addition of a new bedroom. A rundown bungalow in Onehunga has had a small spruce-up and is now tenanted, the rental return…

YOUR MORTGAGE With so many hard-hitting changes playing out across New Zealand’s housing market of late, (and trying to make sense of them) it’s been a while since I’ve done a general market update. Here’s my take on where things are at, and where they’re going, for interest rates and the housing market more broadly. For a while now I’ve been of the view that interest rates will peak somewhere between 5.50 per cent and 6 per cent. And as time goes on, I’m only becoming more convinced. The rhetoric coming out of the Reserve Bank this year has centred on swift and aggressive action to bring inflation under control - rhetoric they’ve followed through in recent announcements, with the OCR (official cash rate) now tipped to get as high…

With more interest rate hikes predicted, it’s important to have a financial plan in place to help you cope with higher mortgage repayments. Below are some ways to deal with higher interest rates: • PAY A BIT MORE THAN THE MINIMUM REPAYMENT. Paying a bit extra pays it off staggeringly fast. • START BUILDING UP A SAVINGS BUFFER now to help you manage higher repayments in the year ahead. • TAKE A CLOSE LOOK AT YOUR BUDGET to identify expenses you can cut out or ways in which you can boost your income. • CHECK YOU’RE GETTING THE BEST DEAL FOR UTILITIES (power, internet and phone) and pay down any high-interest debt as soon as you can to help free up extra cash to divert into your home loan. USE AN…

YOUR SURVEYOR There are some phrases that have many property investors bolting for the door at auction, and one of those can be “cross-lease”. Yet, in my opinion, crossleases can prove to be a better starting point for an investment than any other residential property purchase, with the potential to increase value between 6-16 per cent without doing much more than fixing the title. If you’re based in Auckland, that is typically a yield of $150,000 for a title conversion cost for two units to freehold at approximately $40,000 ($20,000 per title). In the 1950s, cross-leases were used as a non-subdivision method to get a separate title for multiple units sharing the same land, while avoiding the costly contributions and council regulations at the time. The ownership is a form…

YOUR ACCOUNTANT The government’s tax changes that move the bright-line from five to 10 years and remove the deductibility of interest associated with borrowing to buy residential property both contain exemptions for “new-build” residences. If the acquisition is a new build interest deductions are allowed for a 20-year period from the issuance of the building’s code of compliance certificate (CCC) provided it is issued after March 27, 2020. For bright-line purposes, new builds confer a five-year bright-line if they are acquired within 12 months of the building’s CCC being issued. So, defining exactly what a new build is has significant tax consequences. Readers might be surprised by some of the examples that can fall within the definition. FOCUS ON EXCEPTIONS New-build land is generally defined to include land to which…

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 in Wellington Central is dominated by apartments, with 546 of the 828 (66 per cent) properties recently available in this area being in that category. There have also been…

Residential construction is close to topping out, if it hasn’t already, in this housing cycle. ANZ’s latest Property Focus says there simply isn’t enough economic resource available for residential construction to grow much more, and any light at the end of the migration and building materials tunnel seems months away. By then, demand will likely feel different. ANZ chief economist Sharon Zollner says while the bank’s forecast is for the overall level of residential construction to remain high by historical standards, there is a period of contraction on the cards. “We have pencilled in about a 6 per cent contraction in residential investment activity over next year, which relative to previous cycles can be thought of as a soft landing. “However, while benign, this is a significantly weaker forecast than…

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 managing director and franchisor of Propertyscouts NZ. He’s deputy chairman of the RPMA and is passionate about the property management industry, particularly, raising industry standards. SHANE CAMPBELL A Partner in Wynn Williams’ Dispute Resolution Team, Shane specialises in complex commercial…

HOUSE PRICES: UP Despite a sales slump, the median price for houses increased 4.2 per cent annually last month, from $816,000 in June last year to $850,000. They were only up $10,000 from May from $840,000 to $850,000. The median residential property price for New Zealand, excluding Auckland, increased 9 per cent annually from $680,000 in June last year to $741,000. There was a month-on-month increase of 1.1 per cent from $733,000 in May. OCR: UP The Reserve Bank has lifted the official cash rate (OCR) by 50 basis points to 2.5 per cent. INTEREST RATES: DOWN ANZ, BNZ, Westpac and ASB cut their two-year mortgage rates 30 basis points to about 5.4 per cent after NZ’s wholesale interest rates followed the global trends and fell 50-80 basis points over…

COMMERCIAL SPONSORED BY Companies around the world are contemplating how, when, and even if they want their staff to resume regular in-office work. And they are doing so at a time when the views and priorities of their employees have also shifted. The latest readings from JLL’s global office worker barometer indicate forced adoption of remote working has created opportunities, but is also exposing new social risks. Workers say they are experiencing more virtual fatigue, or burn-out, and are increasingly wanting to get back to the office most of the time. JLL says this suggests offices will be more important as the centre of the work ecosystem and outstanding office environments even in small landlord-owned buildings will remain a critical way to engage employees. In New Zealand, some vaccination mandates…

YOUR LAWYER The land of milk and honey, pastures green and the Kiwi drive to live the good life is alive and well. While many are opting out of life in our larger cities for the regions, some are looking to lifestyle blocks as a means of “having it all”. While real estate agents typically pitch the option as an idyllic opportunity to get away from it all to live your best life, perhaps even an opportunity to set up a small boutique business with tax incentives, not all is as straightforward as it seems. It’s worth signposting several often overlooked considerations surrounding tax, conveyancing, and ownership structures before you take the leap of faith and jump in boots and all. Different rules apply to different locations, so it is…

YOUR PROPERTY MANAGER Want to have an emotive debate about renting? Simply raise the question of whether tenants should be allowed to have pets. It surprised many, including myself, when the legislation around pet-friendly tenancies was left out of the Residential Tenancies Amendment Act 2020. According to the Ministry of Housing and Urban Development in their FAQ paper about the reforms, they indicated: “It is an area where there are directly opposing and strongly held views” and as such the government had yet to make a decision1. While I understand the genuine concerns held by many landlords, I cannot help but feel that, under reasonable circumstances, tenants should be able to request the right to have a pet. Many good tenants across the country have that right taken away from…

NZPIF FROM THE PRESIDENT’S DESK ANDREW KING Like a lot of people, I am really looking forward to attending the NZPIF conference in Palmerston North this year. The good news is that the number of attendees has been increased, so if you haven’t registered yet, there is now some available space, It is such a buzz to be going to a conference again after two hiatuses. It’s a shame that we have not been able to get together since 2019 due to the Covid restrictions. While I’m looking forward to this year’s conference in Manawatu, I would like to acknowledge the Wellington Property Investor’s Association for putting so much heart, effort and funds into the attempt for conferences in 2020 and 2021. We are all grateful to the Wellington organisers…

These looks at all transactions across the market and groups them based on who the buyer was. The latest CoreLogic Buyer Classification data hasn’t really seen any wholesale changes for market share in Q2. First home buyers and mortgaged multiple property owners (MPOs) held steady at around the 23% mark each, although cash MPOs did gain a little share, while movers slid back a bit. So generally speaking, it was ‘steady as she goes’ for market share - but of course, that’s within the context of continued falls in the number of deals (-31% in Q1 compared to last year). Kelvin Davidson, Chief property economist, Core Logic Who is CoreLogic? CoreLogic is a leading property information, analytics and services provider in the United States, Australia and New Zealand. Bringing together…

UP FRONT NEWS One of the defining features of independent economist Tony Alexander and property management company Crockers’ investor survey, which has been running since June last year, is that investors are in for the long haul and they don’t radically change their plans. About 65 per cent of survey respondents say they are in it for the long haul. Despite the popular image of property investment being driven strongly by a desire to ride the price cycle or buy and flick, it is not backed up by investors’ expressed aims. In the latest survey, investors’ buying intentions are not trending anywhere and neither are plans for selling. Although the percentage of respondents planning to sell has lifted to 24 per cent from 20 per cent in April and March,…

Existing builds are now known as the poor cousin to new builds in the current tax environment. The reason for this is that investors can deduct interest before tax on new builds, whereas this is being phased out for existing builds. Additionally, Healthy Homes Standards mean higher capital expenditures has been faced by every investor. It’s a double whammy on the bottom line for existing build landlords. Long gone are the days of buying any investment property, giving it a lick of paint and hoping it’ll be a good investment. Renovating to offset the operational costs is tricky and wrought with complication if not executed well. So why is it that investors such as Use Wolfe are still so passionate about acquiring them? EXISTING BUILDS SUCCESS Existing builds offer many…

YOUR RATES On July 13 the Reserve Bank (RBNZ) reviewed our official cash rate (OCR) and increased it by another 0.50 per cent, from 2 per cent to 2.5 per cent. The OCR has been our primary monetary policy tool in New Zealand to assist the RBNZ in meeting its mandate to control inflation, which is currently significantly higher than their targeted 1-3 per cent. The OCR is the interest rate for overnight transactions between banks, which affects the wholesale price of borrowed money. As a result, this directly affects commercial banks and in turn affects the price in which we (as retail mortgage borrowers) borrow money. In general, the higher the OCR, the higher our interest rates. The last time our OCR was at this level was early 2016,…

YOUR PROPERTY COACH It’s no secret that New Zealand’s inflation is causing everyone a whole lot of issues. Living expenses have increased, fuel prices have made us wary of how we use our cars, and the list goes on. What scares most people looking to buy homes is the continuous rise in banks’ interest rates. The last time rates were this high was during pre-Covid times (around three years ago) and even in that market houses were selling at a cheaper rate compared with now. So, why are we saying that now is the best time to purchase your first home? It’s not just because we’re overly optimistic. BUYERS’ MARKET The rising interest rates have actually become a bit of a blessing in disguise. The side effect has turned out…

YOUR REVIEW THE SITUATION Tim and Jo are 51 and 55 years old. They’re both self-employed and own their own home. Tim’s been running his company for 20 years; Jo is a midwife. Together, their household income is about $300,000 per year. Until this point the pair focused all their efforts on becoming mortgage-free, which they were not far off. But, since they were nearing retirement, they wanted to see if investment properties could help them prepare for the future. SETTING THE GOAL Tim and Jo had big (and specific) plans for their retirement. They wanted to: maintain their current lifestyle in retirement pay off the mortgage have enough spare to help their children. When creating a property investment plan you need to ask yourself: “How much money do I…