Housing market pulse check

Buying, Regulations, Selling

Open door with key hanging from the lock

Housing market pulse check post the recent Government regulations

We’re just over half way through 2021 and the property market continues to ride the wave of a post-COVID high. But has the wave been a bit too strong?

The way the housing market has been performing in New Zealand has been, like most things, a blessing for some and a struggle for others. So in March, the Government introduced a suite of policy changes in hopes of cooling the market. This would particularly make it fairer for first-home buyers. A few months on, how are we tracking now?

First, let’s recap the changes:

  1. $3.8b was put into a Housing Acceleration Fund, aimed at supporting housing development as a means of living up to our unyielding demand.
  2. The Government’s First Home Grants and First Home Loans have also been increased to better support first-home buyers’ access to Government funds to help with their downpayment and mortgage.
  3. The bright-line test, a capital gains tax on investment property, has been extended from five to 10 years. This means an investment property sold on again within 10 years of buying will be taxed. New builds are an exception, where the bright-line test remains at five years.
  4. Interest deductions on investment properties acquired after 27 March have also been removed and a plan to phase this out completely by 2025 was put in place. This means investors are now taxed on the full amount of rental income they receive from their property, with no deductions allowed.
  5. Greater investment was provided to Kainga Ora to build more affordable and state housing, helping to further entity’s commitment to provide roofs for those in need.

You can read more and watch the full announcement here.

Couple with moving boxes

Has it all made an impact? Let’s take a look.

  • Investors: The policy changes most significantly impacts property investors. But it’s worth noting that at the same time of the regulations, the Reserve Bank reinstated the loan-to-value ratio (LVR) that required investors to pay a 40% deposit on an investment property. So with all hands on deck to slow down investor activity, we saw just that over the past two months according to recent research from CoreLogic. Investor market share dropped from 29% in Jan-Mar to 25% in May. Along with financial barriers in place, we’re also seeing greater expectations on investors to ensure homes they offer for rent are warm, insulated, and liveable to renewed standards under the Healthy Homes initiative. So while investors can still take a seat at the table, they will need to do so with greater responsibility and deeper pockets.
  • Homeowners and hopeful sellers: The regulations have not and won’t really greatly impact homeowners living in their own homes. Prices are still on the rise and while this may slow slightly in the coming months, the value of your asset should continue to grow. Demand for property is also still high so for those hopeful sellers, the market remains in your hands. With that said, other changes are brewing at the Reserve Bank with a predicted increase to the Official Cash Rate at some stage this year. That might mean we’ll start seeing the record low interest rates inch back up again slowly.
  • First-home buyers: While the regulation’s main intention is to support this group – there hasn’t yet been enough impact to see a slow down or reduction in house prices. That means affordability is still a concern for first-home-buyers. But the Government and banks continue to do what they can to offer financial support to help this group step onto the ladder. We’re also heading towards warmer days, which usually means more homes on the market. And with the acceleration of new builds nationwide, hopefully that means more options for the right price point. Our best advice for this group is to keep looking, know what financial support you can access, and have a clear idea of what you want (your non-negotiable and negotiables). Plus having the right team to support you, from a real estate agent through to your bank, can get you the outcome you’re hoping for.

With ongoing focus on shifting the speed of the market, we’re undoubtedly still in early days and the tides of change may very well be coming sooner rather than later. But should you wait for that change before you buy, sell or invest? At NEWTON + CO, we say keeping a finger on the pulse is essential – because while later might be a good time for some, now might be the right time for you.

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