Warning signs for housing market
Nzherald.co.nz/business Economists pinpoint three areas of concern that could impact New Zealand’s property sector this year
Economists are warning of three major factors that could influence New Zealand’s housing market this year.
The foreign buyer ban, the possibility of the Government axing landlords’ tax deductions, and the introduction of a capital gains tax are all areas of concern for 2019, they say.
Economists at Westpac and ANZ both cite those three factors that could impact the sector and even the head of Auckland’s largest real estate agency is talking of the possibility of a “slight correction”.
Dominick Stephens, the Westpac economist, writing in the November Home Truths report, gave a bearish long-term outlook due to these three factors.
“We do believe that the ban will have a bearing on house prices eventually, Stephens said.
“Next year the market will be impacted by changes to the rules around tax deductions for property investors. And if a capital gains tax is introduced, the impact on house prices will be large.”
The foreign buyer ban came into force in October last year.
The Government wants to stop landlords claiming tax deductions on rental property, leading to an outcry from the Property Investors Federation. It wants to remove a tax loophole where investors with lossmaking rental properties can subsidise part of the cost of their mortgages through a reduced tax on other income.
In a separate tax reform move, capital gains tax has long been on the horizon. The Tax Working Group’s initial recommendations were released in September last year.
CoreLogic said 25 per cent of November’s residential property purchases throughout New Zealand were made by multiple property owners with a mortgage.
ANZ’s housing market outlook, released in early December, cited concerns about the same three factors as Westpac.
“The headwinds of tax changes, tougher landlord responsibilities and the foreign buyer ban are finely balanced with very low mortgage rates, improving credit availability, and stillstrong population growth. All up we see the housing market remaining contained,” it said, referring to loan to value restrictions.
The Auckland housing market was “behaving itself but history warns against ever ruling out a second wind”, ANZ noted.
Peter Thompson, Barfoot & Thompson managing director, believes Auckland prices will be much the same in 2018 but is also somewhat bearish in his outlook.
“There is a chance we could see a slight market correction as it is becoming more of a buyers’ market rather than a sellers’ market compared to this time last year,” he said.
“Days on market is lengthening and more sales are conditional on attaining finance from their banks,” said Thompson, whose business sells
If a capital gains tax is introduced, the impact on house prices will be large.
Dominick Stephens
2019 is going to see a continuation of good property sales being made with house prices remaining similar to what they are currently. There is a chance we could see a slight market correction as it is becoming more of a buyers’ market compared to this time last year.
Days on market is lengthening and more sales are conditional on getting finance from banks. Open homes numbers are fewer in the past month but indications from our people are that those attending have done their homework and are interested in buying, However, with a strong economy, interest rates remaining low, building consents slowly increasing, and development of new apartment blocks and new projects coming on to the market, choice is the word at this time. Technology is advancing but the people who provide a service will still be the key to our business This past year has been very successful for Barfoot & Thompson, seeing an increase in the number of sales, number of properties we manage for landlords, more instructions from body corporates for our body corporate sector to manage. And with the Unitary Plan taking force, our projects team is seeing some projects that were launched in the past year or two being completed and new ones coming on to the market. All this culminated in the last couple of weeks being named Best Real Estate Agency in the World at the recent International Property Awards.
2018 has seen more sales being made than in 2017. Prices continue to increase though only by around 1 to 2 per cent over the whole year. Since October 22, with amendments to the Overseas Investment Act coming into effect, listings are becoming fewer. Buyers have more choice and are doing more homework on what is on the market and unless vendors price their property right, it will remain on the market longer. More private landlords have instructed our agency to manage their properties for them as new legislative requirements are pushing more demands on the landlord and they just want us to take that issue away from them and leave us to manage their rental. Recent legislative changes are going to impact the market with both the Overseas Investment Bill coming into effect and, from January 1, the AntiMoney Laundering and Countering Financing of Terrorism Amendment Act.
Legislative changes will throw up new challenges to vendors and purchasers but as we have seen in other countries, these have settled down after six months once people, including agents, have adapted. Being a member of Leading Real Estate Companies of the World, we attend overseas conferences and symposiums and the feeling in most countries is the fact people can’t now buy in New Zealand full-stop, which is not the case.
Yes, it has tightened up, and most would agree this was needed, but the Government needs to ensure the message gets out around the world that people can still invest in New Zealand, and explain what they can invest in and how to go about it. This will have an impact on much-needed people with skills like the building sector, health and education, to name a few, from coming to our country. The year will see the review of the Residential Tenancies Act and this needs careful consideration. While there is talk of changes to benefit the tenants more, the Government has to ensure equal protection for the landlords otherwise we may see landlords quit their property and invest elsewhere.
This would see a reduction in investment property for rent, create a supply issue and rents would go up and again make it harder on the tenant.
Tenancy tribunals need to be revised to ensure a quicker and fairer outcome for tenants and landlords. Stop introducing new legislation without working through all the issues before introducing it. Talk to the people at the coalface of the business and see what impact will come from these changes. Many of these changes are having a huge cost to the business and while we carry these costs, we may not in the future if they keep going up.
If we look at the anti-money laundering bill, for example, there are the lawyers, real estate agents and banks often doing the same thing for vendors/purchasers and all having to pay for the costs of doing such checks.
While we all agree on the need for protection of our country and ensure we maintain the high security standards we have, there must be a way of having a centralised database, for instance, that all three parties could work through.
A review of the Resource Management Act is needed if the Government is to look at making homes more affordable. Similarly, councils need to limit the number of consent costs they charge on renovations or new buildings. Again, these costs have escalated over the years and when you add these all up, you can understand why prices are going up. Due to our beach house on the Coromandel currently getting rebuilt, my wife and I plan to be around Auckland with our family. We go out on our boat when the weather permits, but I also need to be around for work with the introduction of the new anti-money laundering bill and assist our team where needed. Still a lot of unanswered questions and unknown processes. I hope to read a book or two as well and laze by the pool.
The Government needs to ensure the message gets out around the world that people can still invest in New Zealand.
Peter Thompson