Surprisingly, the hardest time to buy a property is when no one else is, yet when we look back on other quiet markets, it’s normally with regret we didn’t jump in at that time. We find comfort following the crowd, yet right now some of our most successful investor clients are active. When thinking about buying in a quiet market you may consider now is a good time to buy your first investment or grow your portfolio. In this market update we discuss some of your options and provide ideas to consider.
The number of new listings coming to market is much greater than the number of sales, resulting in the largest inventory of homes we have seen on the market in twelve years. This means buyers who are thinking of purchasing an investment property, have much less competition than they did a year ago.
If you are looking for a medium-term investment property in this market, consider the value in buying an existing house with a section size of 300m2 or more, that you or the next owner could develop. From August 2022 councils around the Wellington Region will be forced by new legislation to allow the construction of up to three townhouses, three stories (up to 12m high), covering up to 50% of the land (come in 1m from the back and side boundaries and 2.5m from the front boundary), without needing a Resource Consent.
Council Building Code and Compliance will still be required to ensure the home meets durability, weatherproofing, and safety standers, but you will no longer need to navigate the council height and location rules, and/or get neighbour's permission to intensify the housing on your land. Note, there will be exemptions in the medium density rules in areas where building is considered inappropriate, such as where there is a high risk of natural hazards, or a site has heritage value.
This new legislation is a bipartisan agreement between the Labour government and National Party, meaning it is quite likely to be with us for a long time.
If you prefer new property, consider one of the many new townhouses that developers are now keen to move. Most of these are being pre-sold off the plans, some are in developments that have started and there are a few which are completed or almost. There are great buys to be found, it pays to ask us about them as we have developers telling us to let buyers know they are open to negotiation, to ignore the asking prices, and to bring them offers. For various reasons they won’t always advertise their lowest price. Now’s the time, while we see a dip in prices and less developments starting but expect this to change when our immigrant population starts growing again.
Keep in mind the tax deducibility change that came into effect last year when deciding what type of investment property, you’re looking to purchase. The tax change has negatively impacted existing residential investment properties. Landlords purchasing from hereon can no longer deduct their mortgage interest costs as an expense. Investors with an existing rental can claim 75% of interest costs in the 2022/23 tax year, 50% in the 2023/24 tax year, and 25% in the 2024/25 tax year, and then it is fully phased out in 2025. But new home investors can claim the interest as an expense for 20 years.
So, if cash flow is the essential part of your investment working for you, then purchasing a new build townhouse will help your investment work for you. If growth in value is more important, we suggest that potential is greater for a property which could later be developed. You need to weigh up the options and do what is right for you and your financial future.
