The Hidden Costs of Owning a Rental Property
Real Estate Dreams and Nightmares
I’ve said it before and I’ll say it again: Kiwis love property. Why? Because the sale and purchase of property is a relatively easy process. Finance in NZ is readily available and historically it has been the basis of many a great retirement plan. But the Kiwi love affair with property (and popularity of New Zealand as a great place to live) has created an issue with supply. And this has subsequently driven the price of housing out of the realm of ‘affordability’. So, what to do? Our government can use policy to impact the market. But with change can come side effects. Here are a couple of policies currently on the table and the possible side effects these may have.
1. Extension to the Brightline test
The Brightline test is a tool used to stop ‘house flippers’ clipping the ticket on a rising property market by implementing a minimum time-frame for ownership. The Brightline test works well in a rising market. This is because investors looking to speculate on capital gains are forced to consider where the market might be outside of that period. But, in a flat market it can have a negative effect on supply because housing stock is tied up for the set timeframe. From October 2015 up until the 29th of March 2018, this was set at two years. Post the 29th of March, the Brightline threshold for property (excluding the family home) has changed to five years from the date of purchase.
Not all real estate dreams work out as planned. Many new investors enter the market thinking that it will be a hands-off experience. This is only to find it is anything but. Houses need maintenance and repairs, tenancies can break down and owners can be left covering all the outgoings. Prior to the introduction of the Brightline test, if anything was to go wrong, property owners could look to sell to recoup losses and regain control of their finances. These owners are now required to hold onto their properties for longer than desired or risk incurring taxes, once again having the effect of reducing the natural supply of stock.
2. Ring fencing
Owning property isn’t all beer and skittles. Particularly, if the dwelling you have purchased requires significant ongoing maintenance – which older properties often do. ‘Ring fencing’ has historically allowed property owners to off-set losses incurred through ongoing maintenance, low rents and interest against their personal income. Ring fencing is currently under heavy scrutiny as the government aims to level the playing field between speculators, investors, and home buyers. This all makes property investment less desirable.
3. Healthy Homes Bill
In recent times there has been much discussion regarding a minimum standard for heating and insulation of our rental stock. This has now been legislated by way of the ‘Healthy Homes Bill’ which was passed into law in 2017. Considering the state of the nation’s rental housing stock, significant investment will be required to bring these properties up to standard. Under the current system these upgrades could be off-set through ring fencing. But, they may now need to be fully funded by landlords, depending on the outcome and time-frame for legislative change. The consequence is likely to be increased rents as property investors look to pass these costs on to consumers. This may, in turn, see the return of a ‘rental crisis’ – a common catch cry of early 2018.
The Wellington Real Estate Market
The on again, off again issue with insurance continues to cause issues for buyers looking to secure a certificate of currency. It would appear that some insurance companies have little to no appetite to reinsure Wellington properties as a result of the events of the past few years.
Housing stock levels across the city remain low, with entry level and well maintained homes in particular generating solid interest. If you are considering selling, and you have a home which is warm, dry and sunny in the winter months, now is a good time to take advantage of the lack of competition available.
WELLINGTON MARKET QUICK FACTS
Average sale price by Ward:
June Fun Facts
On Monday June 4th, New Zealand celebrates the Queen’s Birthday
Did you know:
- The Queen has two birthdays; Her actual birthday – 21 April – and her official birthday, which is held on a Saturday in June – when the weather’s better!
- Queen Elizabeth became a homeowner at just six years old when the people of Wales gifted her a house in the grounds of Windsor’s Royal Lodge. Named Y Bwthyn Bach, it means “little cottage”.
- As Queen, she has seen 12 UK Prime Ministers come to power
- She’s the only person in the UK allowed to drive without a licence, and she still drives to this day!
If you or anyone you know could benefit from a considered market assessment by Wellington’s only licensed agent and registered property valuer, please do not hesitate to call. We are always very happy to help.