There’s no doubt that the economics of property investment in NZ have changed dramatically in a short space of time since the market unexpectedly surged in the wake of COVID originally hitting our shores. True, mortgage rates fell sharply, and that triggered a wave of renewed property demand – alongside the temporary removal of the loan to value ratio speed limits and a continued lack of available listings on the market – which have all combined to deliver large capital gains pretty much everywhere. Apart from MacKenzie District (5.5%), every area of the country has seen at least a double-digit rise in property values in the past 12 months, with Wairoa all the way up at 53.2%.
But the flipside of those strong gains has been political pressure to ‘do something’, and a lot of that attention has focused on investors, including a raft of new regulations. LVRs are now capped at 60%, interest deductibility is being slowly phased out for existing landlords (and it’s gone already for buyers of existing properties), and minimum floors for serviceability interest rates could be a reality pretty soon too.
Moreover, the sharp increases in property values have resulted in falls in gross rental yields, from almost 3.5% a year ago (national average) to only about 2.8% now. Auckland has fallen pretty close to 2%. So the revenue side of the equation for landlords has come under pressure while at the same time costs have risen – not to mention the looming strains from higher mortgage rates. Rising interest rates will of course also put a dampener on any capital gains on offer.
So where to next? Obviously the latest round of COVID-related restrictions have been unwelcome and have created considerable uncertainty. But even so, our expectation is still that...
