How property investment has changed, and what you need to be aware of moving forward
Unless you’ve been living in a backcountry hut for the last month, you’ll be aware of the recent housing announcement and the strong reactions in the press.
Every second headline seems to be spelling doom for property investors, but has the golden age of being a landlord truly ended?
Perhaps not, says Residential Property Advisor and Director Regan Johns, from TelferYoung’s Southland office. Here, he explains how the new government housing policies will affect landlords, and where the silver linings could be.
Are you buying or selling investment properties? Get in touch with one of our team for advice or valuation today.
The times they are a-changing
In the past few years, we’ve seen the introduction of a few different regulations and legislations aimed at protecting renters’ rights and improving New Zealand’s housing stock.
The Residential Tenancy Act changed in 2020, making it harder to remove a tenant from a property, the Healthy Homes Act came into play to ensure rentals are insulated and ventilated properly, and the NBS (New Building Standard) has been enforced country-wide, requiring earthquake ratings to be completed for all residential investment buildings higher than two storeys with three or more units.
And now, in the first quarter of 2021, the latest changes to affect property investors and landlords are the extension of the bright-line test and the removal of tax deductibility for interest on the mortgages of rental properties.
“It's a bit of a mixed bag - on the one side, they’re trying to improve the quality of the housing stock and create more opportunities for first home buyers, but on the other side, they are penalising some of these investors who renovate and improve the housing stock.” - Regan Johns, Residential Property Advisor, Southland
Most landlords can adapt and still make a profit
While it can seem like every new announcement is chipping away at the golden era of being a landlord and making it harder to carry on, it’s not the end of the road just yet.
“These are all just things you have to factor in if you wish to continue in the residential investment sector. As long as you’re aware of what the rules are, you can work to those without it affecting your day to day. It might not be the full cream that it once was, but you can still make a profit if you are prepared to invest for longer.” - Regan Johns, Residential Property Advisor, Southland
There is still high demand for rental properties with no change in sight just yet. Although some investors will inevitably have knee-jerk reactions to any new regulation, we’re expecting that it will take some time to see any big shifts in the market, while most landlords get their head around it.
The people most likely to be affected by these changes are New Zealand’s multiple property owners with mortgages, who make up 29% of homeowners (according to CoreLogic). Multiple property owners who buy with cash (12%), and first home buyers (22%) are unlikely to notice a change.
“It’s the ones that have geared themselves up to the eyeballs looking for a quick turnaround who will feel the heat. If they didn’t have enough of a contingency in place before, and now they can’t deduct the interest, they might have to review how they’re doing it.” - Regan Johns, Residential Property Advisor, Southland
In effect, these changes could simply make multiple property owners reassess their investment strategy, and force some considered choices in regard to buying and selling.
How investment decision making could evolve
At the end of the day, owning rental property is an investment and should be treated as such - the most important thing you can do is due diligence, to ensure you know what you’re buying into, and any financial risks involved.
Kiwis love to invest in property as it’s a tangible asset (as opposed to shares), but these new changes mean that smarter investment strategies are needed for landlords to succeed.
“Rather than jumping around the country buying properties sight unseen, it’s better to know what you’re buying. Be less impulsive, and more pragmatic. Do your due diligence, rather than going straight for the best initial yield.” - Regan Johns, Residential Property Advisor, Southland
Investors should look for property that they know well in terms of the area, and then consider things like the physical characteristics of the property, the capital expenditure that will be required going forward, and how long the average tenancy is in the area. If they apply these factors over a longer-term investment horizon, it should help to evolve their decision making.
What does the future hold for landlords in New Zealand?
It’s still too early for any real predictions about the future for landlords in New Zealand. This is a major change to the housing investment market and - like COVID last year - there will be knee-jerk reactions to begin with, but those aren’t necessarily a tell of what will happen in the long run.
“Last year in March/April, there was panic and predictions of a housing crash, but post lockdown the overall market jumped in every region. Given the initial cost of writing off tax is only minor, we can’t predict how people will react to things. We have to wait and see.” - Regan Johns, Residential Property Advisor, Southland
Ultimately, the core issue of the housing crisis remains supply and demand, so as new builds are pushed around the country, we could expect to see land prices and material costs increase.
“Immigration has slowed due to COVID, but we’re still behind on housing supply. Talking to builders, they’re all flat out but can’t get the tradies or materials - the market is red hot and demand is there, but it all takes time. That’s a big bottleneck.” - Regan Johns, Residential Property Advisor, Southland
Independent property advice when you need it, where you need it
Whether you’re looking to buy, sell, or make changes to an existing property, TelferYoung can provide advisory and valuation services to help you make the right decisions.
We can help you answer the questions that matter most: What’s the potential of this property? How much is the market rent? What will the market rent and overall value of the property be if renovations or other improvements are completed?
We’ve got offices across New Zealand from Northland to Southland, with independent property valuers ready to provide sound advice and support before you commit to a course of action.