By Tanya Kwasza, Property Investment Strategist
It has been apparent to all in the property market that investors were stalling until the Budget was revealed. The changes weren’t as formidable as they could have been and were generally anticipated. With an average residential investment property of $350,000 the investor will be out of pocket approximately $30 or $40 dollars per week, which is in effect the same as a one percent rise in current interest rates.
The obvious way to recoup this immediate loss is raising rents. Bill English anticipates small increases,whereas Gareth Kiernan from Infometrics predicts significantly larger rental increases.
Lowering the corporate tax rate signals to New Zealanders to remain here and also encourages Australian and international investors alike, creating even greater demand for housing. Tony Alexander, BNZ Economist comments the current housing shortage is increasing due to the massive drop in residential construction.
Back to basics – this is all about supply and demand. It is safe to assume that there will be upward pressure on property prices over time, inflation aside. Shelter is fundamental: it’s going to be more expensive to own property in the future.
We will now operate under a new frame work and its important to look at the psychological impact on investors. With any investment there are associated risks. It’s hard to imagine creating financial independence by working 40 hours per week. One has to be prepared to make adjustments, think outside the square, finding ways to fund your investment. If needed, work that little bit harder or smarter and maybe spend that little bit less. If those in the top tax bracket are the majority of investors this means that 17% of the population are providing the bulk of shelter for those that can not. Those without the means, resolve or grit to manage the expected and ongoing changes to an otherwise relatively passive investment perhaps should not invest in property. For those that do, it is imperative that your foundations are strong and that you are not over exposed.
There should be no fear of the “big bad wolf” threatening to blow your house down! Bricks and mortar are there for a lifetime unlike many investments in either businesses, shares or finance companies possibly offering a higher return. They may come and go so let’s give a collective sigh of relief and replace the huffing and puffing with real property and long term prosperity.
