I recently asked BNZ Chief Economist Tony Alexander to comment on what we can expect economically and from a property investor perspective in light of our new coalition Government.
He reflected that while attempts will be made to build 10,000 affordable houses per annum they will fail due to a lack of builders and development finance. However if they succeed, fewer private sector houses will be built and rents are likely to rise as a plethora of rule changes make holding property to rent less attractive.
Tony further stated that we can anticipate somewhat faster economic growth and maybe [marginally] slightly higher interest rates and a more difficult life for property investors as the new Government seeks to rebalance policy focus from economic growth toward health, education, housing, social equity and preserving NZ ownership of NZ based assets through new rules effectively banning foreign purchases of NZ property.
Typically over the duration of an election, the property market slows as both private property vendors/buyers and investors hold off in anticipation of policy changes that may affect their decision making.
The property market slow down is continuing post-election with new property listings down [8.4% October 2017 compared to October 2016] in every region with the exception of the Hawkes Bay.
The property market historically follows a cyclic trend, and this past decade has seen a steady increase in asking prices while stock for sale continues to fall.
This is inspiring New Zealanders to think outside the square when it comes to letting go of the quarter acre dream, and recreating the notion of what makes a home.
There is more creative thinking coming into our housing vernacular, such as the Tiny House movement, co-housing with a central hub, as well as apartment and duplex options.
The exciting thing is, as we move through to the next property cycle, we will have more options to suit our lifestyles.
But what if you’re a property investor? Is now a good time to invest in property or not given the election result?
The new Government has indicated it does not plan to introduce a Capital Gains Tax during this term but it has indicated that they may review the Bright Line Test: there is a possibility they’ll extend the two year qualifying period out to five years. Therefore if you sell your property within in the qualifying period a tax will be applied.
Based on this probable outcome, as an investor, your strategy would be to hold onto the property for the Bright Line term and rent out, knowing that your yield will be less attractive, but your capital gain is likely to be sound given that the future demand for property will still be reasonable.
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