What comes next?

Posted 16 Oct '23

What comes next?

by Nick Gentle on
Article appears under: About Property Investment

Well, that was quite a weekend. First, the Election, and then the All Blacks.

I'm not going to delve into any policies outside of property investment; after all, you're not here to read my opinion on the state of our education sector.

However, I believe I speak for most New Zealand residential property investors when I say that we will be happy to see the back of, or at least changes to, many of Labour's property investment and rental policies.

On Friday, we had emailed the owner of a property who rented to a friend and "only wanted to sell to an investor." We pointed out that under the current tax rules, the rent her friend would need to pay would have to double for an investor to buy her house and break even. That gap would never close. Despite investors' best efforts to increase yield to make it work, many rentals were on their way to becoming financially unviable, and many renters were heading towards a very precarious position.

It could never work. It wasn't supposed to work; it was intended to deflect attention and shift blame away from a failed set of housing policies, and ultimately, to force owners to turn to social housing, alleviating another of the government's headaches.

Now, that is no longer the case. I believe this change in government will prevent thousands of renters from losing their homes.

So, what comes next?

A normal property cycle, for which I am very thankful. As we return to normalcy, the next round of challenges and opportunities awaits. The two most significant challenges that I see are:

  1. Insurance
  2. Interest rates

With an honorable mention for the potential introduction of debt-to-income ratios at the reserve bank. 

A LOT will be written about insurance over the next year or two, so I'll set that aside. I think we are all aware of the current interest rates.

Instead, let's focus on which policies are expected to change shortly:

  • The loss of interest deductibility will be reversed, either in phases or all at once, depending on negotiations with coalition partners.
  • The Brightline Test will be reverted to its initial intention, a 2-year catch-all designed to tax short-term speculation disguised as long-term investing.
  • Building products certified in certain offshore markets will automatically be certified here. If vested interests don't obstruct this (a big if), it will put downward pressure on housing development costs and prevent councils from hindering projects that don't use Gib.
  • Borrowing from the National Party's website: "Cut financial red tape that is stifling investment, including the failed CCCFA." This suggests property lending will go back to being covered under the existing and functioning responsible lending code, with consumer finance laws applying to, *gasp*, consumer finance. For investors with portfolios, like yours truly, this is a very welcome change.
  • Bring back the 90-day no-cause termination clause for renting. The removal of this, intended to provide security of tenure to tenants, was damaging for many renters, as it made owners and property managers too risk-averse when choosing tenants. I hope there is a way to provide more security of tenure for those who want it, while making it possible to end problem tenancies.

As for the opportunities?

Welcome back to a normal property market. That's your opportunity.

Add value, develop, renovate, refinance, build, subdivide—do the mahi and reap the rewards.

I don't think there's going to be a boom; that just ended, and interest rates are at 7%. However, I do believe there is once again an opportunity to methodically build towards something, which is a welcome change.

I also believe that, as in 2008, investors will step back into the market and buy properties they might not have been able to make work before the weekend. I made my money in property by being countercyclical, and with a profitable business, it has been incredibly frustrating to be sidelined by the CCCFA for no reason that made sense.

Game on.

Nick Gentle

Nick Gentle
Business Owner & Operations Manager
nick@ifindproperty.co.nz
027 358 3855

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