The Runaway Asset Train!
I suspect most people reading this blog have some interest in real estate and therefore are aware that the market is booming.
Since emerging from lockdown in late April the Wellington market has moved around 13%. Why? Well, it’s been a perfect storm of low interest rates, loosening of LVR restrictions, rents holding (and actually increasing) and population growth. In March, when life as we knew it turned on its head, the Reserve Bank and Government had to react quickly. And while some of those actions were implemented with the best of intentions to keep the country afloat, they’ve had a huge impact on the market. But with home ownership looking less and less likely for future generations, what tools does the Government have in its arsenal to slow the runaway train?
A return to LVR’s?
Back in 2016 the Government implemented an LVR to help slow the market and reduce the number of investors who were competing with first home buyers. And it worked. A requirement of 40% equity for subsequent properties made it very hard for investors to qualify for finance or offer at a level to match first home buyers. This year LVR restrictions were removed to allow business and personal borrowing to offset pandemic losses. But the reintroduction of LVR’s could be what’s needed. It would slow those on the property ladder leveraging existing gains to secure property with no money down. So for those of you searching frantically for a new beach house (and according to Trade Me there are plenty of you) get in quick, it may all be over soon.
Removal of the Brightline test
The Brightline Test was brought in to stop people turning over property with no tax implications. Initially it was for two years, and this was increased to five under the current government. What this meant is that any investment property brought and sold within a two, or later five, year period would be subject to a form of capital gains tax. A great idea but the consequence of this has been a significant impact on the number of houses for sale. Rewind back to 2014/2015 average stock levels in summer sat around the 1500 mark. Just five short years later and the Wellington market struggles to get over 500. At the time of writing this blog, there are just 427 houses, apartments and townhouses for sale. And of course, low supply and high demand drives prices even higher.
So why has it had that impact on stock levels? It has encouraged those, such as first-time investors, to hold their rental properties longer rather than selling and facing some capital gains tax. Removal of the Brightline test will increase the supply of the houses hitting the market but society and the Government would have to live with owners making tax free capital gains in a short period of time.
Introduction of a Land Tax
Similar to a wealth tax, a land tax is based on a percentage of a property’s land value. Take a basic small inner residential section in Mount Victoria with a land value of around $700,000. The annual tax on this would be around $3500 (based on a suggested rate of .05%). Previous discussion regarding the land tax has suggested that the family home would be exempt but that it would apply to holiday homes, rental properties, commercial properties and farms. One consideration which hasn’t yet been posed is regarding land that is leased on ‘peppercorn rents’. So, for example, the Chews Lane apartments are on a long ground lease to the Wellington City Council. Those owners do not technically own the land so would they be exempt? Other points of discussion would need to include who would be responsible for establishing the land value and how those values could be challenged.
The Wellington Market
It’s pretty much rinse and repeat in the Wellington Market at the moment and unless there are some significant changes in the stock levels between now and Christmas, we can’t see anything changing. Although with much of Europe enforcing new lockdown measures it will be interesting to see if this has any impact on consumer confidence. For now, the most popular price range, which has also sadly become the entry level price range, sits between $800-1 million. For anyone who happened to see our listing at 8 Archbold last month, that sold after receiving 32 offers! Let’s see what November brings.
Wellington Market Quick Stats:
What’s on this November in Wellington?
Wellington Jazz Festival, 18th – 22nd November, Various locations around Wellington
Get soulful and find your jazz groove this spring as incredible live music and good times once again fill our city’s streets and bars at this annual musical feast.
Headlined this year by the incredible Taite Music Prize winners Avantdale Bowling Club and a new Jazz Premiere Series of Kiwi composers Blair Latham, Kevin Field, Anita Schwabe and Riki Gooch, this year’s Festival is a showcase of top local talent and the finest homegrown jazz.
Beers at the Basin, 28 November 11.00am – 7pm, Basin Reserve
What better way to celebrate the first stirrings of summer than with the classic combination of beer, music and your mates? Beers at the Basin is back and is set to deliver a quality day out. Down at the Basin Reserve, this popular Saturday event marks the start of summer and is known for showcasing some of New Zealand’s best musicians and brewers.
Cinderella – The Pantomime, 13th – 20th November, Circa Theatre
Circa’s annual Christmas pantomime has been a festival tradition for generations of Wellingtonians. Whether you’re young or young at heart, you’ll fall in love with Circa’s quirky, funny and heart-warming Christmas performance.
While the Brothers Grimm arguably made it famous, the story of Cinderella has been around for centuries. Now it comes to Wellington’s Circa One, with a unique contemporary twist and a few jokes thrown in for good measure.
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 happy to help.