Southland rents expected to rise after Government legislation
The Southland Property Investors Association expects rents in the province to rise as investors count the cost of new Government legislation.
An economist says changes to the tax laws around investment properties may lead to some investors selling properties, but there is unlikely to be a flood of houses on offer for first home buyers.
Last week, the Government announced a raft of policy changes designed to address the rampant increase in housing prices nationwide. Amongst the changes was the removal of interest deductibility, which means interest payments will not be able to be deducted from rental incomes to limit tax obligations.
Interest deductibility is a usual cost of doing business usually afforded to all businesses, but now doesn’t apply in property.
Data provided by Tenancy Services showed the median market rent in Invercargill from September 1, 2020 to February 28, 2021 was $500 a week. It was $325 a week in Winton and $300 a week in Gore.
Southland Property Investors Association president Irene Leonard said changes to the interest deductibility rules meant rents would inevitably rise as a result of the changes. ‘‘They have to. Investors operate as a business and the aim of any business is make money,’’ she said.
She expected some investors to sell their properties because they were unable to afford to keep them.
‘‘Then they may be impacted by the changes to the bright line test, so they’ll be hit with a double blow.’’
Some would also stop buying properties to add to their portfolio, which might give first home buyers more options, but it might not bring down house prices, she said. ‘‘What you have to remember is that first to home buyers spend more than we do because they buy on emotion. They fall in love with a house and want it, whereas investors will walk away if the numbers don’t stack up.’’
REINZ acting chief executive Wendy Alexander said the changes to the interest deductibility rules which have been up until now a legitimate part of an investors’ business costs have surprised the industry, as the changes would completely change the financial dynamics of investing in residential property.
‘‘In our view, people are likely to already be wary about investing in rental property given the changes to the RTA and the prior removal of ring-fencing. However, this is likely to exacerbate concerns around investing in rental property and may see investors considering whether they can get better returns elsewhere.
‘‘Many landlords are now likely to increase their rent as they look to offset the costs, thereby making rentals even more unaffordable than they are currently and making it even harder for renters to save a deposit for their own property.’’
Southland had experienced a shortage of rental properties, which had put pressure on rental prices as demand continued to exceed supply, she said.
Infometrics economist Brad Olsen expected the changes would result in highly leveraged investors selling out of the market, either to lower-leveraged investors or to first home buyers.
‘‘Given the strong level of housing interest still, combined with a still-existing housing undersupply, still positive housing returns, and a lack of viable alternative investments at the same scale, we don’t expect to see a complete sell-off of investment properties,’’ Olsen said.
‘‘It’s important to recognise the immediate reaction to the announcement, with current investors threatening to, variously, send rents skyrocketing, sell houses en masse, or illegally boot out tenants on the coldest day of the year.’’