A cooling in the New Zealand residential property market on the back of the Government’s investor-targeted tax changes has left an opening for first home buyers as residential investors take stock.
Lodge Real Estate Director, Jeremy O’Rourke, says there has been a temporary and short-term investor retreat from the residential property market as residential investors assess what the new rules, introduced in March, mean for them.
One of the biggest changes, removing tax deductions on interest costs for rental properties, has left many residential property investors cautious as to the impact it will have on them.
“First home buyers have a good opportunity at the moment but it’s not one that’s going to last forever because residential investors will return to the market and first home buyers will be edged out again,” says O’Rourke.
He believes residential property investors will return to the market once they realise that, even though some of the short-term incentives for owning residential property have been removed, residential property is still a good investment over the long-term.
“We’re saying to first home buyers take the opportunity now while many investors are sitting it out and while you’re not in direct competition with them to buy a property.”
He says the Government’s changes announced in March, which also included extending the bright-line test from five to 10 years, will only create a short-term gap in the market because the key driver of the housing crisis has still not been addressed.
“There are simply not enough houses. We’ve seen lots of attempts to ease demand for housing introduced over the years by both Government and the Reserve Bank, but they haven’t fixed the problem, they’ve just created a gap,” says O’Rourke.
“Fundamentally residential investment remains a good investment and investors will work that out over the next few weeks.”
The residential property market had eased in April after a bumper March. There was still good activity in the housing bracket above $850,000 but below $800,000 it had eased, says O’Rourke.
There continues to be an increasing number of properties being listed, with listings for both March and April up 20% on February’s listings.
In the auction rooms a greater number properties under $800,000 were being passed in, as compared to March, but many are now going into negotiation with first home buyers who are prepared and presenting offers drawn up in anticipation of the home not selling under the hammer, says Jeremy.
“We’ve had people sitting at home watching the auctions on our live Facebook feed with offers ready and drawn up, prepared for if the property gets passed in.”
Around 80 percent of properties were being cleared at auction in March, but only around 65 percent were cleared at auction in April.
Auctions presented a particular challenge for first home buyers, he says, because they needed to be able to go unconditional at auction, but many were not able to do that with conditions imposed by their lenders.
“So instead, they’re coming to us and saying can you draw up my offer to present if it doesn’t go at auction.”