Survey finds investors cautious

New Zealand property investors are being more conservative currently but are optimistic about the future a survey has found. Property investors are taking a more conservative approach given the current real estate market and recent taxation changes and are looking to reduce debt, improve cashflow and boost savings according to the latest annual ANZ/New Zealand Property Investors Federation survey.

The survey, completed by around 1000 investors nationwide and reported on in detail in the NZ Property Investor magazine, found respondents did not have high expectations for capital gains or rental incomes in the short to medium term and are responding accordingly, for example by using spare cash-flow to pay down debt.

Respondents were optimistic about returns in the longer term however and 88% said they intend to hold on to their properties.

The survey found that on average investors expect house prices to rise by less than 2.5% over the next year, but predict rises of 6% to 10% over the next five years. Similarly the majority said they expected 2.5% to 5% growth in rental income in the next year, with more positive results over the next five years.

While two-thirds of landlords said they expected to increase rents as a result of the changes announced in the May budget, most are reportedly waiting for the current tenant to leave before doing so and the majority are planning to increase rents by only 2.5% to 5%.

Not only are the vast majority of investors intending on holding onto their properties but about a third said they intended to buy another property within the next year.

Reasons cited in the survey for not buying property within the next year were: poor rental returns (31%), lack of capital (31%), an inability to subsidise negative cash-flow from other income sources (28%), the poor economic outlook (28%) and poor prospects for capital gains in the future (27%).

Meanwhile the greatest investment risks were seen as: a fall in property values (19%), loss of tenant (15%), and the tenant being unable to pay their rent (15%).

Investors were apparently not greatly concerned about interest rate rises.

New Zealand real estate sales figures

The latest data released by the Real Estate Institute of New Zealand (REINZ) shows the median residential property price remained unchanged at $350,000 between September and October, but was $5000 down on October 2009.

Sale numbers were again down for the month, reaching a record October low of 3905, but the median number of days to sell a property improved slightly, reducing by two days to 41.

Rental prices (New Zealand totals)

Data released by the Department of Building and Housing shows the number of properties let in October 2010 was approximately 5% down on October 2009, however median rents increased by $10 or $20 in all categories with the exception of one bedroom properties where there was no change to the median.

Summer maintenance and renovation

Summer, with better weather and longer days, is a great time to consider doing maintenance and/or renovations on rental properties.

Not only does implementing a good maintenance programme enable you to put a halt to problems before they become major, but it also helps you to protect the value of your asset and to retain and attract tenants.

Similarly, sensible renovating can also be advantageous in terms of tenant demand, rental income and in improving your future capital gain.

So, if you want to take action over summer talk to your Harcourts Property Manager about what work they recommend as they can offer informed advice on what tenants look for and discuss what may assist from a resale perspective too.

Your property manager will also be able to arrange tradespeople and will ensure there is appropriate liaison with the tenants in connection with the work arranged. If you decide to do or organise the work yourself we still recommend you discuss your plans with your property manager to ensure any of your dealings with the tenants are both best practice and in line with the relevant legislation.

For example, there are requirements around notice periods and different obligations regarding temporary rental adjustments depending on whether there is a minor or major inconvenience to your tenants from the work.

Further, whether the renovations are cosmetic improvements or a major addition such as a new garage or bedroom will affect the courses of action open to you with future rent increases. For instance if you are make modifications resulting in significant additional benefit to the tenant you have different options to when there’s just minor work done.

Tip: With significant Government subsidies available for insulation and clean heating you may like to take action in this regard over summer.

Government decides gift duty to go

The abolition of gift duty may be good news for investors with trusts set up to protect their personal assets.

Revenue Minister Peter Dunne recently announced the Government’s intention to abolish gift duty, saying the move would be welcomed by taxpayers generally as the rules were resulting in a high level of compliance costs and were no longer raising any significant revenue.

Harcourts New Zealand CEO Hayden Duncan says should the transfer of property assets to trusts without the hassle and costs associated with the current process be permitted in future it will be good news for those with trusts set up to help protect their personal assets.

The abolition is likely to be effective from 1 October 2011, with further clarification around property assets and trusts expected prior.

Did you know?

• New Zealand economists are now predicting the next Official Cash Rate rate increase by the Reserve Bank will not be until the second quarter of next year.
• A Bill to streamline New Zealand's land transfer legislation will be introduced in Parliament next year as the result of a review of Land Transfer Act 1952.
• According to the latest Roost Home Loan Affordability report the October tax cuts along with flat interest rates helped sharply improve home loan affordability – taking it to June 2004, pre-housing boom, levels.
• An additional 100,000 rental properties will be required in Auckland over the next 20 years according to the Centre for Housing Research's recent Auckland Housing Market Assessment.
• When New Zealanders move house the majority review their service providers (such as their telecommunications and insurance company) with many making a switch as a result, according to a recent survey by QV.co.nz which also found more people sell their existing home before buying another rather than vice versa.
• There is now an online energy rating system that enables people to rate the energy efficiency of their property. The government-supported industry initiative, Homestar, was launched with claims a higher star rating could provide a competitive edge for some houses on the market.
• This article has been supplied by Stu Jenner of Harcourts Remuera - to see Stu's listings click here.

Posted: 1 Dec 2010

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