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Real estate as investment loses allure
By SUSAN PEPPERELL
The Kiwi love affair with property investment is over. New research shows a drastic decline in the number of people intending to buy real estate as a money-making strategy.
Property experts say tax changes announced in the Budget, rumours of a capital gains tax and a lack of confidence due to the recession are contributing to investor reticence.
Nielsen's annual Real Estate Market Report shows a 40% drop in the number of people intending to buy an investment property compared to the same time last year.
Last year one in four people surveyed said they would buy residential property for investment, but that figure is now down to one in seven – the lowest in the five years the survey has been conducted.
Alistair Helm, chief executive of website realestate.co.nz, says the decline began last year and the May Budget announcements removing tax claims for depreciation had simply continued the trend.
"The reality is that people's appetites have changed."
The Budget measures were introduced to dampen Kiwi enthusiasm for property investment and encourage investment diversification. Massey University's director of banking studies, David Tripe, said they appeared to be working, which was "not a bad thing".
"If we go back, there has long been a hysteria among Kiwis for investing in property because they saw it as a way to make lots and lots of money. Now we're getting a slightly more realistic view."
Helm said that a lot of property investment was based on the potential capital gains rather than yield from rents. Uncertainty and increased risk because of the economic environment had stopped people being so acquisitive.
However, there had not been a flood of investment properties coming on to the market either. "If there is, it tends to be at the lower end of the market."
The Nielsen survey also showed a corresponding 42% decline in the intention of property investment owners to sell.
And there have also been predictions of a price drop of up to 5% in the next few months based on tax changes taking effect in October, the new depreciation rules and a struggling market which had flatlined in the past 9-10 months.
According to Inland Revenue, the total amount of taxable losses claimed from residential property investments in 2008 was about $2 billion, compared with about $1.5b in taxable income declared by investors who made a profit on their properties.
The trends meant the real estate market was a lot quieter.
"The property market mirrors consumer confidence and confidence in the economy, which can't find its feet at the moment," Helm said.
Tripe said New Zealanders traditionally borrowed internationally and they did not invest in anything but property, which was not a good base for the economy.
Meanwhile, New Zealand Property Investors Federation president Martin Evans says membership of his organisation, an umbrella body for about 20 property investor associations, has slowed as a result of the reluctance to invest in property.
"The bottom lines are not as good as before and interest rates are going up.
"People looking for properties as a rental proposition used to do so to realise the capital gain, but there will be no capital gain in the foreseeable future."
Evans said that at the bottom of the market some properties were being sold for less than the original purchase price, and he predicted there will be more sales in that category.
Speculation about a capital gains tax was contributing to the depressed market and landlords were reluctant to raise rents, especially those managing their own properties who knew their tenants personally.
The Kiwi love affair with property investment is over. New research shows a drastic decline in the number of people intending to buy real estate as a money-making strategy.
Property experts say tax changes announced in the Budget, rumours of a capital gains tax and a lack of confidence due to the recession are contributing to investor reticence.
Nielsen's annual Real Estate Market Report shows a 40% drop in the number of people intending to buy an investment property compared to the same time last year.
Last year one in four people surveyed said they would buy residential property for investment, but that figure is now down to one in seven – the lowest in the five years the survey has been conducted.
Alistair Helm, chief executive of website realestate.co.nz, says the decline began last year and the May Budget announcements removing tax claims for depreciation had simply continued the trend.
"The reality is that people's appetites have changed."
The Budget measures were introduced to dampen Kiwi enthusiasm for property investment and encourage investment diversification. Massey University's director of banking studies, David Tripe, said they appeared to be working, which was "not a bad thing".
"If we go back, there has long been a hysteria among Kiwis for investing in property because they saw it as a way to make lots and lots of money. Now we're getting a slightly more realistic view."
Helm said that a lot of property investment was based on the potential capital gains rather than yield from rents. Uncertainty and increased risk because of the economic environment had stopped people being so acquisitive.
However, there had not been a flood of investment properties coming on to the market either. "If there is, it tends to be at the lower end of the market."
The Nielsen survey also showed a corresponding 42% decline in the intention of property investment owners to sell.
And there have also been predictions of a price drop of up to 5% in the next few months based on tax changes taking effect in October, the new depreciation rules and a struggling market which had flatlined in the past 9-10 months.
According to Inland Revenue, the total amount of taxable losses claimed from residential property investments in 2008 was about $2 billion, compared with about $1.5b in taxable income declared by investors who made a profit on their properties.
The trends meant the real estate market was a lot quieter.
"The property market mirrors consumer confidence and confidence in the economy, which can't find its feet at the moment," Helm said.
Tripe said New Zealanders traditionally borrowed internationally and they did not invest in anything but property, which was not a good base for the economy.
Meanwhile, New Zealand Property Investors Federation president Martin Evans says membership of his organisation, an umbrella body for about 20 property investor associations, has slowed as a result of the reluctance to invest in property.
"The bottom lines are not as good as before and interest rates are going up.
"People looking for properties as a rental proposition used to do so to realise the capital gain, but there will be no capital gain in the foreseeable future."
Evans said that at the bottom of the market some properties were being sold for less than the original purchase price, and he predicted there will be more sales in that category.
Speculation about a capital gains tax was contributing to the depressed market and landlords were reluctant to raise rents, especially those managing their own properties who knew their tenants personally.
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