​RBNZ maybe winning the battle but will it win the war?

RBNZ maybe winning the battle but will it win the war?

The RBNZ pretty much declared war on the property investor back in May 2015 with LVR rules on Auckland investors, 30 per cent deposit please. The rest of the country scoffed a little and thought those Aucklanders have had it too good for too long, higher pay, free equity, great transport and fantastic sports teams. Well maybe scratch the last two.

As always the property cycle did what it does and the rest of the country began to catch-up, Hamilton, Tauranga, Wellington and so on. House prices grew and now it’s a full on battle ground for the RBNZ. July 2016 and it is a 40 per cent deposit for all investors and by the way, banks tidy up your lending quality and cap your high LVR lending to 10 per cent of the loans you make.
Needless to say it’s had an effect on the market. Buyers are still there but the investor has really been squeezed out of the market (the price appreciation appears to not be the same as earlier in the year especially investor property). Time will tell if this is just a blip as equity builds slowly and investors have to wait. As I say to clients the RBNZ wants you to have more in your investment properties not to protect you but to slow down house price growth and for your bank’s financial stability. Banks only have 13-15 per cent capital, so an 85 per cent loan to value ratio. If they have to write off 10 per cent of their loans due to bad debts its big trouble for a bank. So you want to start investing anyway and build towards a retirement nest egg or just think it will make later life easier, what can you do?
Save and pay down debt and wait until you have enough equity in your home or cash to put down – a very slow strategy and one you may never catch up on if the market keeps moving up. Unless you are an above average income earner and a top saver it’s a flawed strategy
Wait until the rules change – this may be a long wait
Buy a new build as these are exempt from the rules and only 20 per cent is needed
Go to a specialist lender who is not a bank and fund outside the rules – you will have to pay more, 1-2 per cent more so negative gearing is even tougher to service
You may have enough equity already – you will need to buy wisely if you want to grow aggressively, see the value in a property few others can see to get free equity.
You are already are an investor but are now locked up with no spare equity to leverage against
All of the above again
Look to maximise your rent on current properties to improve capital value – create equity
Utilise spare land to build or add a minor dwelling – create equity to leverage off and improve overall rental yield
Utilise square metres inside the floor plan or add rooms – creates equity to leverage off
Sell the underperformers and prepare for the next buying opportunity
Is your two bedroom with a 100m floor plan in Central Wellington under-utilised? Should it be a three bedroom home/rental or could it be a four bedroom two bathroom family home with a $50k-$75k investment? Certain areas are screaming out for four bedroom family homes now as they just didn’t build any in the 1930s to 1960s in that area. Upper Hutt has a lot of 2.5 bedroom homes but is short on three and especially four bedroom family homes. I have seen investors take a single or very small double room with a high stud and put a double bunk bed in so the room can take a couple but also have room for a desk and drawers, instead of a $150pw room it is now $200pw. Yes it is harder but times like these are where you have to think outside the square and make your investment as efficient as possible Will the RBNZ win the war? They will claim they did and they may slow it down or knock the froth off but the property cycle is based on people’s confidence which is driven by a few fundamental components
• Interest rate stability
• Their own job stability
• Potential tax free equity growth
• Equity loss from when the cycle turns – losses hurt twice as much
• Significant change in personal finances – inheritance, windfall, litigation
Property will go up, slow, kick again then retreat to a base level where we will sit for an extended period. There is a little more to these strategies above but they do work and can help you through this part of the property cycle and the RBNZ’s war on the investor.
*All information provided is for information purposes only and where the information comes under the auspices of the Financial Advisers Act 2008 it is considered to be class advice only. No information is to be taken as specific personal advice.