New Zealand’s residential investment market in 60 seconds.
House prices calm after a massive boost
Markets have calmed after 2 years of big gains during the pandemic. Ability to secure financing has been impacted by the CCCFA and overall affordability has been impacted by higher interest rates. Buyers and their funders have become more selective about properties.
Law changes target investors
Over recent years the government has implemented a wide range of changes to impose more controls on the market. Key changes include tax regimes (removal of interest deductibility and bright lines for capital gains) and controls to improve the standard of rental housing (healthy homes). Professional management is becoming increasingly important, particularly as the government prepares to regulate property managers.
Investors in a holding pattern
Challenging conditions mean reduced acquisition activity by investors. The 2023 election will be of interest to investors as a change in government may lead to changes in policies that improve returns for investors.
Rents on the rise
The recent return to positive net migration, alongside disruption from extreme weather events, is likely to add more demand into the rental market particularly in the Auckland Region where migrants tend to locate first. Rents are likely to rise over the next 12 months, consistent with historic trends.
Prices likely to stabilize
Independent forecasters are typically predicting house prices will stabilize in the latter half of 2023. Whilst rising interest rates were a key factor during 2022, growing sentiment that long-term rates are peaking will help to moderate this concern.
Market pivots to new builds
Housing developers have been pivoting towards multi-unit housing. Investors are likely to also start refocusing towards new build product given the more favourable tax treatment for new homes, lower maintenance profile and often higher rental yield for more intensive housing.