by Eva Churchman
In the past week I became the Property Attorney for an elderly friend who has had to go into a home, and the main asset which I became responsible for a decision on is her house.
The three options basically are: land bank it (keep it maintained, but unoccupied as an investment); rent it out (also with investment gain in mind) or sell it.
I had a talk with a real estate agent acquaintance on this, who himself owns investment properties. The prognosis — now is the time to sell and that is what he’s doing with his own properties.
The government has wanted to get investors out of the market, and has largely achieved that — the biggest step towards that was abolishing the tax deductibility of interest paid to lenders on mortgages from this July. The 10-year “bright-line”, i.e. capital gains tax on houses sold within 10 years, wasn’t a big disincentive as the net profit taxed at 33% before 10 years were up is still a lot better than the return on deposits in the bank, which now doesn’t even compensate for inflation
The feeling in the industry is that the government’s next step will be to make all expenses of landlords — maintenance, rates, etc. — non-tax deductible.
The other big factor is the consideration “has the market peaked?” That involves some “crystal ball gazing”, and last year economists got it quite wrong when they said property prices would fall because of Lockdown. The government’s massive borrow and spend into the economy went into house prices, not productive enterprises.
But, there are limits to how much the land prices can keep rising before affordability limits what people will pay and there is the feeling that the steps that the government is belatedly taking to increase supply of housing will gradually be effective. The delay at present is mainly caused by shortages of qualified tradespeople, and some materials shortages. But the major driver that has existed over the last couple of decades of huge net migration seems to be over — that figure fell sharply last year.
The result is that while house prices are unlikely to fall, they probably won’t increase much for a while either.
The other deterrant to being a landlord now is the quite tough requirements that the government has imposed on the standards required for tenanted accomodation. These can be read here (left hand side list). The real estate agent I talked with said his own, reasonably upscale, house wouldn’t meet these requirements. Checking through them, I discovered that’s true of our Waikanae house also. The cost of meeting some is not small. As an example, it’s not enough to have opening windows to the outside in bathrooms, extractor fans must be installed.
As a property attorney there is an implicit obligation to consult with the beneficiaries of a person’s estate (when the person dies), and I’m hoping in my case that they will agree to my selling the house to save me a lot of hastle.