Looking ahead to 2018

Auckland property investor David Whitburn

Big questions remain around exactly what sort of new property industry related regulations will be introduced by the new government.

But the Healthy Homes Guarantee Act is now law and minimum standards for insulation, heating, ventilation, draught stopping, drainage and moisture in rental properties are pending.

This combined with a widespread shortage of rental accommodation, which some commentators expect to grow as fewer rental properties are put on the market, mean rents are set to rise.

NZ Property Investors Federation executive officer Andrew King says the costs of owning and maintaining a rental property are likely to go up so market rents are set to follow.

This is particularly the case because landlords are now seeing diminishing capital gains and will be turning their attention back to yields.

King says tenants don’t like to have big increases in rent, so landlords need to plan for it and put it up in increments over the appropriate time period rather than all at once.

It is worth noting changes to the investor environment mean there could be a lot fewer new investors coming on to the market, he adds.

“So, potentially, there could be some good opportunities out there for more established investors – although it’s quite tricky to make predictions at the moment as everything in a state of flux.”

Prominent Auckland property investor David Whitburn agrees that predictions are difficult and that means many investors are worried about what is to come.

But he says there will be a massive swing towards new builds as a strategy for investors.

“New builds require a much lower deposit from everyone, including investors and that means investors don’t need to use as much equity. This helps with buying capacity.

“On top of this, buying a new build makes it much easier to meet the looming minimum standards.

“While investors haven’t yet flooded to new builds, despite the lower deposit requirements, I think the Healthy Homes legislation should be the kicker.”

In Whitburn’s view, investors planning to buy should look at areas where there is significant infrastructure development and related employment opportunities.

“When it comes to Auckland, that means suburbs around big construction areas like the airport – ie: Mangere, Papatoetoe and the like – and out at Westgate – ie: Massey, Swanson, Royal Heights and the like. They are likely to outperform.”

On the other hand, the CBD apartment market is likely to get a bit colder, he says.

“Changes to immigration, particularly regarding students, could impact on demand. With lots of apartment development going on that could impact on rent rises.”

When it comes to the prospects of the housing market generally, the view of economists seems to be that – despite more signs of life recently – prices are likely to continue to plateau.

Westpac chief economist Dominick Stephens says they expect the current market upturn to persist for a few more months.

The drivers of this could be a recent decline in fixed mortgage rates, a bit of a rush to beat looming regulatory changes and the Reserve Bank’s easing of its LVR restrictions.

But Stephens says they remain very firmly of the view that the good times will not last long as almost every factor they can think of is lined up against the housing market.

“Net migration is dropping away sharply; fixed mortgage rates are likely to rise next year; foreign buyers will be banned; property investors’ tax treatment will deteriorate; and sentiment will take a knock because people know that further deleterious tax change is likely.

“That the housing market will be weak over 2018 seems like a straightforward call to us.”

However, they can’t get too negative on house prices over 2018 as if the market really tanked, the Reserve Bank would ride to the rescue by further loosening the LVRs, he says.

“Consequently, we have limited our forecast to a 2% decline over 2018. But we wouldn’t see LVR loosening as a reason to forecast rising house prices over 2018.”

Read more:

Healthy Homes now law 

Top 10 predictions for 2018 – Colliers