The Government’s signalled real estate changes were announced in April, affecting tenancies and tax regulations for investors.  One of the most significant tenancy changes is a change back to the former 90-day “no-cause” end of tenancy notice for periodic tenancies, meaning landlords don’t need to give a reason to end a tenancy.  Other notice periods are also shortened (https://www.beehive.govt.nz/release/tenancy-rules-changes-improve-rental-market). 

Among other changes:

• A phased return to allowing 100% tax deductibility for mortgage interest on investment property. Investors will be able to claim 60% of their home loan interest costs against rental income in the 2023/24 financial year, 80% the following year, before 100% in 2025/26. (This is an improvement on National’s original intention to increase the deductibility by 25% increments annually to 100%). 
• From July 1st, 2024 a rollback of the current 10-year Brightline test to two years for existing investment property. An effect of this is that new investment property will no longer have a Brightline advantage. It will be recalled that the Brightline test is, in effect, a capital gains tax on profit on investment property. Principal places of residence are exempt.  
• National’s proposal to allow foreign buyers to buy existing property over $2 million but to tax purchases did not survive.

In the past few weeks there has been a noticeable increase in investor inquiry, with many believing that property prices in Dunedin are at a low ebb. While some price brackets remain lacklustre, the lower end of the market is attracting good inquiry from first home buyers, who in coming months may face serious competition again from investors. It is still fair to say, however, that interest rate levels are resulting in investors looking for sharply priced property as most will still face propping up rent accounts for a few more years. 

Owners of higher-priced property on the market, especially those in less popular localities, are facing decreases in expected sale prices from the heights of a couple of years ago. Some are looking at 10-20% falls from their July 2022 rating values. Conversely, this looks to be a great time to buy, especially for those trading up. As I’ve emphasised previously, buying property should be regarded as a long-term investment. As with the share market, the dates that matter are when you buy and when you sell. 

Rents up

Latest rental figures show Dunedin rents are increasing. With mortgage rates staying around 8 to 9% and rates and insurance costs increasing, landlords are unlikely to be arresting that trend until the rental market reaches a point where supply exceeds demand. 

Market moves

The property market generally is experiencing a lift from the dark days of last winter with the median sale price climbing again to near $600,000. Listings have also climbed over 700 but they are still well short of the 1000 to 1200 that was commonplace when I started real estate 17 years ago. Although many believe the market has bottomed and prices will rise through this year, interest rates will have a bearing on that and could temper the expectant optimism for a few months yet.