Blog: The Landlord says...

The talk about changes to the tax system has died down a little and now reality is starting to sink in.

Most commentary has been around the fact that the proposed changes are designed to whack residential property investors. The anti-property brigade has been in strong voice once again pushing the spurious line all property investors are fat cats rorting the system; thankfully investors have been putting up a pretty good defence.

While things are still murky around what the government will do and how far it is prepared to go to alienate a good chunk of its support base, there is acceptance change will happen.

As I have digested the changes and talked to other investors it has become clear this is big.

Indeed I would argue the changes are once-in-a-generation stuff. The rules around residential property investing will totally change. The business will be totally different and investors will have to change their approach.

I have heard that many investors have got the heebie geebies and are already looking to exit and have put properties on the market.

I’m not sure that is necessary. The changes don’t necessarily mean that investing in residential property will no longer be profitable. It means you will need to think about how you approach it.

One change I suggest will happen is that some of these companies who find properties for investors and sell them to them on the basis of depreciation gains and tax benefits will struggle to survive.

Also the changes are likely to drive up rents over the medium term. While that is a plus for investors, tenants won’t be happy with the government.

The March issue of NZ Property Investor will be giving you lots more information about what these changes mean and what you can do adjust.

I’d love to hear your thoughts on the changes and how you plan to adjust to them. You can comment below or send an email to thelandlord@landlords.co.nz

PS: I was in Auckland this week and attended one of Kieran Trass’s breakfast presentations. He has plenty of views on the changes and also some ideas on what to do. If you are in Auckland and want to attend one of these Wednesday sessions click here.

Mortgagee sales are likely to hit the headlines again when the latest stats come out showing a big increase in the number of properties sold this way.

We’ve been looking at this issue for an article in the next edition of the NZ Property Investor magazine. Mortgagee sales are interesting, as most people think that banks are unhelpful and will move to a sale quickly.

It reinforces that notion banks are bastards.

Indeed the opposite appears to be true. Around 30-40% of mortgagee sales are conducted by banks, yet they are responsible for more than 80% of all home loans written.

That suggest second tier lenders, particularly finance companies and mortgage funds, are the ones fuelling this market along.

The latest stats, yet to be released by Terralink, will show that the number of mortgagee sales have increased yet again from just over 200 in March to more than 250 in April. No doubt this will be trumpeted as some additional sign of doom and gloom for the property market.

However, if this market is being driven by the second tier lenders rather than that banks, then it wouldn’t be out-of-line to assume that they are well through the process of liquidating their loan books and the number will start falling again.

So for investors looking to nab a bargain (according to QV the sale price of a property is on average 16% below market value), then they better get in quick.

The other thing which came up when researching this area was that banks actually want to avoid mortgagee sales.

As one said: “It is in the bank and customer’s best interests to not force the sale of a property, due to increased costs and the risk of the end sale price being lower than what could have been reached through a normal sale.”

A little while ago I commented on the coverage of mortgagee sales in New Zealand. This week there was a useful bit of information put out which was, arguably, the more definitive research with real numbers.

The stories written in the past had been reasonably sensationalist and not particularly scientific. The new survey, from Terralink, is based on registered mortgagee sales.

What is interesting is that the percentage and actual numbers of properties sold by this method is pretty small; 191 properties nationwide in January. But growing.

We shouldn’t be surprised that the number is growing.

The points which are useful to note are that many of the sales are being done by second tier finance crowds, not the mainstream banks. I’m not sure many people knew finance companies were involved in this market.

Secondly there are always winners and losers in these types of transactions. The winners will be the buyers as it seems often the vendor will let the properties go at whatever price they can get.

For investors mortgagee sales are useful to look at, but as we reported in NZ Property Investor Magazine, there can be fish hooks in these sorts of transactions and buyers need to be aware of what is happening.

The other trend we may see is a spike in mortgagee sales while finance companies cash up their loans, and then the mortgagee market will be more focussed around what banks are doing. The message I am hearing across the market is that banks are finding more and more of their lenders are running into trouble or difficulties with repayments, but to their credit (no pun intended) some are setting up divisions within the bank to identify potential problem clients and help them before it is too late.

When it gets to the too-late stage there is little option but to go to a mortgagee sale.