New Zealand Rental Property Investment - Is It Still Worth It?
Investing in rental properties has been a great method for many New Zealanders to build their assets and make money. However the property market has changed, and continues to evolve, which subsequently affects the profitability of investment properties. Are they still worth it?
New rules and regulations
With the new ring fencing rules, that were implemented on April 1st 2019, it is harder to offset any rental property losses against other income. Investors are facing higher compliance costs due to the tenancy terms (that are more favourable for tenants) which have been proposed, alongside additional heating and insulation costs. As a result of these changes, returns on rental investments are becoming too low to make a positive cashflow.
There is also potential for a capital gains tax on properties sold within 5 years of purchase, which will scare away many traditional property investors. While future legislation can’t be predicted, it’s logical that if the intention of owning investment property is to primarily make capital gain, investors can expect to face some form of future taxation.
Advantages & gaining success
One major advantage of property is the banks willingness to lend against it as they’re not as willing to lend against other land or business investments. Having the ability to take out a loan from your bank is essential for property investment success, and with the increase of house prices there will be opportunity to borrow more.
To maximise the potential of your success it is important to exist in a favourable tax position, and necessary to increase the rent of your property to cover increased rental investment costs.
We are hearing that there is a shortage of housing, in which case, house prices should continue to rise. However there is evidence that otherwise suggests house prices are remaining static across the nation, and can be expected to fall in selected areas over coming years.
If property investment is one part of a well-diversified portfolio, then think carefully about the risks and expenses in owning such an investment. We advise you assess the cash flow profit against the risk adjusted return of other investments to help make your decision.