Innholdsfortegnelse for March 2023 i NZ Property Investor

With Cyclone Gabrielle tearing its way through much of the North Island, February was a terribly difficult time in New Zealand. We sincerely hope that no-one has suffered loss of family or friends, and look forward to more settled months ahead. In this issue of New Zealand Property Investor, we investigate opportunities in the current market. Market downturns are usually great for savvy investors, but the downturn we are currently experiencing is different from many that have gone before. Sure, there may have been a decrease in median house prices nationally of around 13 per cent year on year (according to REINZ January data) but considering house prices rose 45 per cent in the 18 months between May 2020 and November 2021, this is nominal. Interest rates are high, credit…

New Zealand now has more property managers than it has drivers, cooks or architects, census data shows. More than 40 per cent of tenancies are overseen by property managers on behalf of landlords and in the past year alone property managers lodged more than $162 million in bonds. Common wisdom has it that renters pay more if they rent from a property manager, but is this true? A Consumer NZ investigation set out to answer the question by asking the Housing and Urban Development (HUD) Ministry to compare the value of bonds lodged by property managers with those lodged by private landlords. This approach isn't perfect; there's no single source of truth for who owns what property and how much they rent it for. The best data is from bonds…

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…

YOUR RATES At the time of writing the OCR is sitting at 4.25 per cent and the expectation is that we will see this increase to around 5-5.5 per cent over the next two reviews. However, recent events such as lower inflation numbers than expected has meant that expectations are somewhat being reduced. It is possible we will still see an increase of at least 0.50 per cent in February, but there still may be another increase in April if we don't gain more traction on keeping inflation under control. Remember that the RBNZ target is between 1-3 per cent, not the recently recorded 7.2 per cent. For the first time in quite a while we have seen some long-term interest rates (three-five years) as cheaper than short-term interest rates…

YOUR LAWYER In the current market we're finding that non-bank lenders – such as finance companies, building societies, and credit unions – are being considered more frequently by property developers and purchasers as a funding option. Historically these providers have generally only funded projects that banks consider too risky. With rising interest rates and property prices around the country flattening, banks continue to tighten criteria against which loans and finance secured against investment properties are approved. Investors who are under contract to purchase may now find bank finance offers revoked, particularly where a property's value has fallen from the agreed sale price. As a result non-bank lenders present a real option to avoid default. While non-bank lenders are regulated similarly to banks, they often take a different approach to lending,…

YOUR DEVELOPER Due to its emphasis on fostering trust between the parties involved, a new approach to formal contracts has taken the spotlight; relational contracts. Traditional contractual agreements typically include very restrictive terms that can stifle communication between parties and lead to conflict as each side seeks to maximise their own benefits, sometimes at the expense of the contracting party. They frequently have a very black and white position to the commitment and do not prepare the parties on how to handle unprecedented circumstances. A relational contract prioritises good faith procedures, aligns goals, eliminates contractual conflict and establishes mutual benefit between the parties. WHY USE A RELATIONAL CONTRACT? Relational contracts are a desirable alternative due to the core component of trust and are incentivised by mutual goals and cost savings.…

UP FRONT NEWS More than 74 per cent of landlords are planning to increase rents this year by at least 5 per cent and possibly more. But this year it will pay for landlords to keep communication open with their tenants over rent rises, particularly as unemployment is expected to jump as the Reserve Bank intends engineering a recession. While most landlords want their properties tenanted at market rent, this is sometimes regarded as excessive. One landlord found himself in hot water with the Tenancy Tribunal for trying to get a 30 per cent rent increase to bring his property up to what he regarded as market rent. The 30 per cent hike foisted on an Amberley, North Canterbury tenant was slashed by the Tenancy Tribunal. In an unusual move,…

YOUR SHORT-TERM RENTAL Without question, a central issue impacting the global short-term rental market over the last several years has been border closures and Covid-19 restrictions. However, 2022 saw a notable return in demand with the end of Kiwi lockdowns and global border re-openings. At The Stay Hub we achieved an impressive 86 per cent occupancy across our entire portfolio last year. Many of our owners also saw their revenue double in the second half of the year, with this trend set to continue. In 2021, the global short-term rental market held a value of $US99.38 billion. This is forecast to almost triple by 2030, tipping its value over $US256 billion. INFLUX OF TOURISTS While most short-term stays in New Zealand for 2022 came from the domestic market and our…

YOUR ACCOUNTANT With the financial year end looming it is timely to highlight key issues residential property investors should be aware of and urge them to consult their accountant for advice. INTEREST DEDUCTIBILITY Despite all the publicity we have clients, mostly new investors, who are still unaware of the interest limitation rules and how deductibility works in general. Unless you have purchased a “new build” property with a code compliance certificate issued on or after March 27, 2020, you will not be able to claim and offset 100 per cent of your loan interest against your rental income. If you already owned rental properties prior to the law change on March 27, 2021, then you can still claim 75 per cent of the loan interest against your rental income for…

YOUR REVIEW On the surface it looked as if 35-year-old investing couple Tom and Sammy were doing really well, but increasing interest rates had them beat. A rolling interest rate from 2.5 per cent to 6.5 per cent meant an extra $1,200 a week in property top-up contributions – a significant blow to their cash flow and time spent with their young children. Here's how they sold one property, to get them back on track. THE INVESTORS Tom and Sammy had a combined salary of $180,000 and were busy, working parents raising two kids. Their portfolio of four houses included their own home, two investment properties, and they had another property under construction (due to settle later this year). Currently, the portfolio was worth $1.9 million, which would jump 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 The rental market in Lower Hutt is dominated by houses, with a reasonable number of flats and a smaller presence of apartments. Of the 459 properties recently available for rent, 342 have…

LEARN ABOUT THE MARKET AND TALK TO OUR EXPERTS BY SIGNING UP FOR OUR MONTHLY WEBINARS: WWW.THESTAYHUB.CO.NZ/WEBINARS Are you interested in learning about the short-term rental market? The Stay Hub webinars cover everything from increasing your rental returns to which properties you should be investing in to suit guest demand. PROPERTY INVESTMENT & EDUCATION WEBINAR, AVAILABLE ON DEMAND. 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 SEVEN-MODULE ONLINE COURSE, AVAILABLE ON DEMAND. HOSTED BY GILLIGAN ROWE & ASSOCIATES. Includes over 12 hours of videos, articles and quizzes. Special price of $495 for Property Investor Magazine readers (usually $595). To register for the discounted price: www.gra.co.nz/ps-offer or phone +64 9 522 7955. For…

TAX UPDATE Whether you are a businessperson signing contracts, a property investor signing agreements with banks, a property trader, or a developer, you will want to pay as little tax as legally required and protect the assets you've worked so hard to attain. So how do you do this? Should you set up a company? A trust? Both? Neither? The answer is in the asset planning process, and the objectives are threefold: Without a good asset plan, your assets could unnecessarily land in creditors’ hands, the beneficiaries of your estate might not get what you intend to leave them, and you could pay too much tax (or not enough and get into trouble with IRD). If your trust succession arrangements are incorrectly set up, your children could lose control of…

HOUSE PRICES: DOWN Auckland property prices dropped under $1 million to $940,000 in January for the first time in two years. REINZ's figures show nationally, the median price for residential property dropped 13.3 per cent annually to $762,500 and declined 9.3 per cent for NZ, excluding Auckland, to $679,000. OCR: UP The Reserve Bank's official cash rate sits at 4.75 per cent, with the bank indicating more rises are to come up to possibly 5.5 per cent. INTEREST RATES: DOWN ASB has changed its home loan rate card and delivered drops in its long-term rates. Its new three-year rate is now 6.69 per cent, down -15 bps, its four-year fixed rate has been reduced by -40 bps to 6.59 per cent, and five-year rate is down by -50 bps to…

YOUR PROPERTY MANAGER New data released by Tenancy Services for quarter four in 2022 highlights that tenants defaulting on rent payments is becoming increasingly problematic. Out of the 4,387 landlord applications made to the Tenancy Tribunal in Q4 2022, over 75 per cent were for rent arrears. Step back to the same period in 2021 and landlords only made 2,900 applications to the Tenancy Tribunal, of which 72 per cent were for rent arrears. This is a significant increase. As the cost of living impacts us all many landlords will likely want more rent to cover increased costs, such as climbing interest rates. The issue here is that more pressure will also be placed on tenants. If New Zealand goes into recession and we see a slowdown in the economy,…

YOUR SURVEYOR With 2023 off to a rocky start, you may be wondering if it's time to pack up and move out of your home or farm. For many, commercial land succession planning is a familiar term. However, if you are a homeowner you may not have a plan in place to maximise the value you get from your property when you sell. Approaching this in the right way could mean you maximise your retirement account, or that you are able to sell off your land assets and remain on part of your land without a mortgage or other debts. 1 EVALUATE ASSETS The first step is to talk to a specialist surveyor before you speak to a valuer. Your surveyor will be able to discuss where opportunities may exist…

YOUR MORTGAGE Everyone loves a “get rich quick” story – and the last 20 years or so have been littered with them. Falling interest rates meant you could throw money into just about anything (property, shares … you name it), sit back and reap the returns. A lot of people got very rich by virtue of nothing more than being in the right place at the right time. In last month's article, though, I talked about how the next few decades are going to look very different as various economic, regulatory and environmental forces usher us into an extended period of low growth. It's pretty depressing stuff. But while the “get rich quick” days are behind us, there will always be genuine ways to make money in property – and…

NZPIF FROM THE PRESIDENT'S DESK SUE HARRISON Phenomenal rain in Auckland and other areas causing destructive flooding is life as we know it in a world facing pandemics, climate change, and other challenges such as earthquakes and eruptions. Taking on investment properties has never been for the faint-hearted and the risk profile seems ever increasing. New Zealand has been facing a rental housing shortage for several years. This has led to increased competition for available homes, driving up rentals and making it increasingly difficult for many Kiwis to afford a place to live. The Covid-19 pandemic has had a profound impact on the global economy and has resulted in a significant divergence in the rental market. The shift to remote work and economic slowdown have resulted in changes in demand…