Is property still a good investment?
There's no doubt; many potential property investors were spooked by the government's housing policy changes announced in March. What once was a cast-iron investment option suddenly seemed less attractive. However, despite the changes to tax concessions and the bright-line test, there's little evidence that landlords are selling up in any significant numbers. So, is property still a good investment?
Short versus long-term property investment
If you are thinking about investing in property, it's important to be clear about your reasons.
If you are after big short-term capital gains, you need to consider the changes to the bright-line test. Under the changes, any residential property bought and sold within ten years is now subject to tax.
Furthermore, the soaring house prices that led to huge capital gains may be a thing of the past. According to the latest data from CoreLogic’s House Price Index, nationwide property prices increased by 1.8% in June compared to 2.2% in May. CoreLogic contends this is ‘early evidence of a gentle deceleration in market momentum.’ And this trend is likely to continue with anticipated interest rate increases. In fact, ASB has just announced an increase to its mortgage rate. And it's expected other banks will soon follow suit.
However, for long-term investors, there is evidence that buying property is still a good strategy. With interest on short-term deposits at all-time lows and share markets subject to volatility, property investment still delivers fixed returns. In NZ, property's capital growth is reasonably predictable, with househouses prices doubling every 10-12 years.
So, for those investors willing to play the long game, property is still an attractive option.
Location, location, location
To maximise the potential, investors need to make smart decisions about where to invest. The location has a significant impact on rental demand, tenant quality and your rate of return. So, look for properties in locations with affordable prices and relatively high rental returns. This means concentrating on areas with strong local economies and growing populations.
Diversify into new builds and commercial property
Many property investors are now looking to diversify their portfolios. In June, the government issued a consultation paper that exempts new builds for the bright-line changes. And the consultation also proposes that investors will still be able to claim home loan interest on new builds. Furthermore, the changes to LVRs mean a lower deposit is required for new builds. These moves, coupled with the demands of the Healthy Homes standards, have made new build property investment very attractive.
Other property investors are turning to commercial real estate. Much like new builds, commercial and industrial property is not subject to the government’s policy changes. Plus, like residential property, you can still borrow to invest, making it attractive for those with equity but little ready cash.
In the current climate, the bottom line is property investment is no longer a sure-fire way to make a quick buck. However, there are still opportunities out there for those willing to play the long game.