Blog: The Landlord says...

Optimism is returning to the residential housing market, which has some positive flow on effects to the economy as a whole.

This positive feeling is best shown in recent house sales reports which tend to indicate that we are past the low point of the cycle. From now on it will be a steady upward climb, although not steep.

It was useful to attend last week’s NZ Property Investors Federation Conference in Auckland to gauge the market.

You’d expect a group like this to be positive about things, and that did come through in talking to investors.

However, I couldn’t help feeling that the overall theme from speakers was to be cautious out there. The old cliché being we are not out of the woods yet. Indeed a very good presentation from the ANZ Bank left the clear message that some people may be getting ahead of the market.

Clearly the issues for investors are changing at the moment too. Earlier this year I wrote about finance being the biggest issue for investors. This is less of a problem now, and the biggest one is tenants and how to manage them.

The worst thing that can happen for a landlord is to have an empty property with no rent coming in each week.

I suspect with unemployment rising that this issue will continue to hang over the market for some time.

The message for landlords is that they have to really look after their tenants and keep a close eye on their bank account to make sure rent is being paid.

Too often I hear stories about investors not reacting soon enough when things go wrong. The rules are quite clear around what you can and can’t do, and there is plenty of information from organisations like the Department of Building and Housing and others to help investors. One of these is a series of seminars run by DBH to help landlords get it right.

Tax reform is one of those phrases which we are all going to hear a lot about in coming months and one suggestion already being aired is a capital gains tax on property.

Property investor lobby groups made it clear before last year’s election that, vote for Labour and you vote for a capital gains tax on property.

Vote for National and you’re safe, they said.

The argument went that Labour was keen on a CGT and so too were its likely support partners, the Greens and the Maori Party.

Well hello; investors got their National-led government and its Finance Minister Bill English seems interested in the idea of a CGT on property, or some form of land tax. Yes, he has acknowledged that it may be hard to get through the National party caucus, but I am sure if he wants to he will succeed.

While New Zealand may be out of line on this one with many of its peer countries, I am happy for that to be the case as there is little evidence a CGT works in keeping house prices down.

The other side of the argument which is difficult to fathom is that many argue Kiwis shouldn’t invest in residential property. Well if this group of more than a quarter of a million people aren’t prepared to own, finance and manage houses, who is going to?

Property investment is a legitimate form of investment. Investors are landlords and providing a service industry – accommodation.

Do we really want house prices to fall 30%? That would see a huge loss of wealth to the community and no doubt put some major strains on the economy.

While I don’t think the people making these claims have much credibility with their forecasting, the fact that they get so much air time is scary.

Leave these things like CGT on property alone. Previously the playing field was tilted in favour of property investors, however changes in recent years, such as KiwiSaver and the PIE tax regime have evened up the score.

It will take time for people to shift and change their investment patterns, but it will happen – slowly.

Instead of a CGT on property, more effort should be made in strengthening and deepening the capital markets so there are other investment opportunities.

A revamp of the housing market data announced today is great news for property investors and is long-overdue.

One of the big concerns I have about reporting on house price movements is that most commentators think of, or report the market as being one big mass. This implies the market is the same.

The reality is far different. The housing market is an extremely complex beast with lots of different sub-markets or sections.

The Reserve Bank today released a document on how it would like to see the market reported. The ideas are good, and hopefully the index will be better than the name they gave it: “Development of stratified housing price measures.”

What they do is talk about different levels, or strata, in the market, based around price bands.

This will be useful to understand what is happening in the markets property investors are interested in.

We know house prices and rents are of intense interest to investors and something they watch often.

A comment in the bank’s document highlights part of the reason for this.

It notes that “sales volumes on cheaper property is more cyclical.” It’s understanding these cycles which is so important. (As an aside, the guru of property cycles, Kieran Trass, has just released a new book on the subject. The Housing Bubble is well worth a read if you want to learn more about how the market works).

The other point worth making about the market is that it can be cut up many other ways than just by price. You can look at it from a metropolitan/provincial point-of-view, by types such as apartments, three-bedroom homes, flats and so on.

The more information there is out there telling investors what is happening in the market, the better.

My hope is that once this series is established we will see much more informed house price commentary.

Full RBNZ discussion document here.