Blog: The Landlord says...

A story which caught my attention today was one about the importance of property investors in the New Zealand economy.

The story here reports on comments from the Department of Building and Housing (DBH) that the number of people in New Zealand renting is increasing and the trend is likely to continue.

There are a bunch of reasons for this, which are explained in the story, many of them being global trends rather than locally-driven ones.

Where I thought this was interesting is that if the government department responsible for the sector is talking about the growing importance of landlords, then surely the government should be listening and making sure the rules around property investment support Kiwis investing in bricks and mortar.

Past Blogs in recent weeks have talked about housing policy and next week’s general election, I just hope whoever wins, takes on board this information from DBH and helps investors.

If not I guess we end up with more state housing and overcrowding in private dwellings – not an attractive idea.

The other story which is related is that a survey out this week shows rental property is not currently seen as the place which will deliver investors the best returns. Rather property has fallen from grace and been replaced by term deposits and bank savings accounts. I can understand this at the moment, but again Kiwis need to see property as a good investment which provides adequate returns for the risk and the amount of capital invested.

If this doesn’t happen then we end with the situation that there won’t be sufficient rental houses in the private sector pool to address this trend DBH have identified.

This year’s election is a critical one for property investors as whoever forms the next government will change the rules around investing.

If National is elected it is likely to remove some of the less landlord-friendly parts from the review of the Residential Tenancies Act which is due to go to a select committee next year.  It is understood that the party’s housing spokesman has already given undertakings to key groups in the property investment sector.

Also it is likely to address issues to do with utility charges, such as water. The NZPIF has lobbied for water charges, to be billed in the same way as other utilities. In the past landlords, particularly in Auckland have had difficulties with water rates.

While both the big parties, Labour and National, have said they are against capital gains tax on property investment, it could be forced onto the agenda in post-election coalition building process.
Both the Green Party and the Maori Party have advocated some sort of capital gains tax.

A Labour-led government may be forced to look at these issues if it forms a government and that it could conceivably include it in its proposed December mini-budget to pay for its election promises.

Home loan rates will no doubt be the focus of much news in the next week. Expectations are that the Reserve Bank will, on Thursday, slash the official cash rate (OCR), with some predicting a cut of up to 100 basis points (1%).

Whatever happens, home loan rates will fall.

I have been thinking that the sorts of cuts we are seeing in mortgage rates will be a trigger for a pick-up in house sales and possibly even prices. Under such a scenario the so-called real estate crash would be reasonably short-lived. Much shorter than the normal cycles.

This view is being challenged by the massively unusual circumstances we see in financial markets. As we have been reporting on GoodReturns.co.nz banks are tightening their lending criteria and some are withdrawing their lo-doc loan products.

Added to that the non-bank sector is shrinking at a reasonably rapid place and many of those that still exist have withdrawn many of their fixed rates as they are too hard to price in these volatile market conditions.

The upshot of this is that if you want to borrow some money you are nearly forced to go and visit your bank.

But instead of just giving money away, as has been the norm for many years, they are reverting to their old ways.

When I was a young lad and started my first job in a big bank on Featherston Street in Wellington, customers had to come in and nearly grovel for money. If they weren’t a pillar of society then getting an approval was a long shot.

Well I use a bit of hyperbole here, but it is getting much harder.

This change in attitude is bringing the credit crunch onto New Zealand’s shores. This will no longer be just something happening offshore. It’ll be here in New Zealand.

As a result, buying property will be limited to those with at least a 20% deposit and a good credit history and job. Any major uplift in house prices and sales volumes now looks less likely – for now.

After returning to New Zealand after following two weeks in tropical North Queensland I am left wondering about each countries’ approach to property investing.

My thoughts are that in Australia they are far more recpetive to the idea of residential property investment, while here our politicians and officials spend a heck of a lot of time trying to jawbone the market downwards and discourage people from buying bricks and mortar.

This, at the moment, seems an odd strategy considering the carnage currently taking place on the world share markets.

Two of the items which made me think about this was when I had trouble with my Visa card and went into a Westpac branch in a little town out the back of beyond. Here the bank proudly displayed a number of comprehensive brochures on how to invest in property, questions to consider and how the bank could help. (Also in this town I met a lady who wants to get the NZ Property Investor Magazine and reads this site – Hi!)

In New Zealand I’m often surprised that banks don’t provide, or promote, solid options for property investors. After all there are around quarter of a million people who own investment property, no doubt valued at many billions of dollars.

To its credit ANZ has worked hard in this market and partnered up with the NZ Property Investors’ Federation.

But perhaps the item which got me really thinking about this was an ad in the local paper.
This ad was run by CentreLink (the government department charged with looking after welfare and the like). It was advertising a seminar series designed to teach people about the benefits of leveraging and investing in property.

Now I bet that is not something you would see in this country.

These are just two examples of things which made it seem Australians were positive about property.

What is odd though is that property investment in New Zealand has some real benefits over Australia. For instance we don’t have stamp duty (a form of tax) and our yields seem much better.

So maybe we should be picking up on this Oz enthusiasm for property investment and encourage more Australians to our market!