In order to get a sense of what may happen in 2023, we’ve chatted to a range of experts on their expectations for the next 12 months. It’s an election year, and National has signified they will make significant changes to the rules governing landlords if they get in; there may also be a recession looming, which will also have an impact on the property market.

Here are five expert opinions on what the year ahead will bring; we hope you find it enlightening and educational.

DAVID FAULKNER, GENERAL MANAGER PROPERTY MANAGEMENT, PROPERTY BROKERS

Many believe 2023 will be a challenging year. “I admit that I’m a bit nervous about 2023,” confesses David Faulkner.

“We are already starting to see landlords coming under pressure from rising interest rates and the removal of interest deductibility, and it’s really a bad double whammy.”

He believes there may be increased pressure to raise rents because of this, and with forecasts of rising unemployment and an impending recession, we may start to see more rent arrears from people whose finances are being stretched.

Investors who have made money from the recent boom will re-enter the market mid-year, he believes.

“Cashed up investors, especially those who sold at the peak of the market, may start buying again,” he says. “Especially if there is a change of government, and a
reinstatement of interest deductibility.”

Regulation of the property management sector, which he has been championing, is not a done deal yet, he says. National and ACT feel the government is too bloated and that regulation of the sector would add to this.

“But the counter-argument is strong – regulation raises the professionalism of the sector and helps landlords ensure they are meeting compliance standards. The cost of implementation is really outweighed by the services that professional property managers provide.”

Faulkner believes rents could go flat for a while and landlords may start looking at ways to reduce costs. “They may start to think about self-managing, so it’s time for property managers to work incredibly hard and show the landlords whose homes they manage just how much value they bring.”

TONY ALEXANDER, ECONOMIST

For now the investors are hiding in the hills, but economist Tony Alexander believes they will be back in the market in as little as two months.

“Eventually monetary policy will gain traction and when the consensus view shifts to people believing interest rates have peaked they will see what their worst case debt-servicing scenario is and the solidity they gain will bring some back into the market.

“The Reserve Bank has signalled the OCR will hit a peak of 5.5 per cent in April and the markets will have already priced that in. It is also talking about recession this year, but I don’t believe we will have a recession, and if we do it will be like the United States just had last year – GDP technically falling for two quarters in a row, but the labour market not radically weakening.

“It also seems reasonable to expect that ahead of the general election late next year people will exercise caution about big spending decisions. But if the polls suggest a National-dominated government investors will start buying before then in anticipation of regaining their ability to deduct interest costs from their rental streams when calculating taxable incomes.

“Generally, buyers have been scared by market volatility, higher interest rates, and new rules and regulations, and although first home buyers have been in the ascendency recently, with little competition, at some point they will be pushed out of the market again by investors.

“At some stage the Reserve Bank is going to ease up on the requirement from November 2021 that a maximum of 10 per cent of new lending can be with low deposits. As each month goes by the banks get more comfortable with the strictures of the CCCFA.

“The existence of quite low lending volumes caused by low real estate turnover will bring more and more concern from banks about meeting sales/profit targets and additional easing of lending criteria will occur. We are on a track now of slowly improving lending criteria.

“Even if house prices do fall further, which I believe they will, the passage of time will do what it has always done in the housing market: deliver rising prices which improve the deposit one is able to come up with for the next purchase in one’s life cycle.”

‘We are on a track now of slowly improving lending criteria’ TONY ALEXANDER

PETER LEWIS, VICE-PRESIDENT NEW ZEALAND PROPERTY INVESTORS FEDERATION

Until the election later this year, New Zealand Property Investors Federation vice-president Peter Lewis believes the housing market for investors will be in the doldrums.

“Once there is some certainty over the election results, and if a National-led government is in the box seat, investors will start making plans to increase their portfolios and house values will stop dropping.

“Until then the market will remain subdued mainly because of the difficulty in obtaining finance. Most deals falling over are because buyers can’t get the money to settle a deal. Banks are risk averse and with the CCCFA changes in 2021 have become even more so. This will continue for quite a few months yet before their lending criteria is loosened,” he says.

Lewis, 70, recently had an investment property mortgage roll over and the bank became twitchy about his age. He moved it to a second-tier lender at 7.1 per cent interest.

“More people will end up using second-tier lenders to obtain finance. The big four banks, who move in unison, will tolerate it for a while, but when the second-tier lenders start making substantial inroads they will either move to buy them out or destroy them in some way. I have seen it happen before.”

He doesn’t see any long-term drop in house prices when the cost of building is going up as rapidly as it has in the past year.

“Every year a number of old houses are taken out of the market and more need to be built just to stand still. If developers can’t make a profit, projects stop and the price of all housing increases.”

Lewis says many landlords don’t appear to have grasped how much extra tax they will be paying under the Labour Government’s removal of the mortgage interest deductions against rental income. “When they get their tax bills in the next few months they are going to be in a for shock. Many rentals will go from being profitable to unprofitable.

“Raising rents this year will not cover the extra tax. For example, if a landlord wants to raise rent $100 a week they would need to charge a tenant an extra $150 a week to achieve $100 in the hand. There are not many rentals that could take that sort of increase nor tenants who would be willing to pay it.”

He hopes the rising government-led vilification of landlords will drop away this year if there is a change at the election. “It’s gone on too long and is not justified. Private landlords provide a valuable community service.”

NICK GENTLE, PROPERTY INVESTOR AND OPERATIONS MANAGER AND CO-OWNER, IFINDPROPERTY

Given the raft of factors in play, Nick Gentle says it’s hard to predict what will happen in the housing market price wise next year. “I just don’t know. It could drop, it could flatten, but I really can’t say.”

His company has seen a drop-off in investor inquiry, driven by rising interest rates, the removal of interest deductibility, and uncertainty over the future. “But there are still opportunities for those who are prepared to roll up their sleeves and do some work,” he says.

“For buyers willing to add value, there is much less competition than 18 months ago,” he says. “People are able to spend more time on deals.”

Gentle says he has been stung by the Credit Contracts and Consumer Finance Act (CCCFA); having purchased a significant renovation and then being stung when funding was declined by the bank.

“I am half a million dollars better off than I would have been, and it’s been a good learning for me.”

He believes relocatable homes could be a good option for future investments and a way to add value.

The election is also set to be a significant factor for investors, given there are two parties with completely differing ideologies vying for votes.

JEN BAIRD, REINZ CHIEF EXECUTIVE

“It’s important we look at today’s market with perspective. The real estate market is cyclical; we’re coming off the back of two high-activity, high-growth years in real estate where supply heavily outweighed demand and saw unprecedented upward pressure on price movement. That sets the bar high.

“2022 proved a stark contrast as the market moderated and settled into a slower pace. Access to finance, inflation, rising interest rates, a possible recession and geo-politics all played their part in shifting market sentiment at a speed we haven’t seen for decades.

“As we head into 2023 these factors will continue to play out in the real estate market. “In late November, RBNZ raised the OCR by a record 75 basis points to 4.25
per cent. The central bank also forecasts a peak of 5.5 per cent next year and predicts a further rise in inflation accompanied by a year-long recession from mid-2023.

“The immediate effect on the real estate market was more hesitancy. Buyers again weighing up the likely impact on mortgage rates with current downward pressure on property prices, and those thinking of selling again looking at the market and asking, ‘Is this the right time?’

“And for many it is the right time. We are still seeing over 5,000 property transactions monthly (November 2022: 5,525). People continue to make life choices and therefore need to be on the market.

“Those who are selling are being realistic: they are meeting the market and are entering negotiations.

“Conversely, this is a prime time to be a buyer. Firstly, there is significantly more stock on the market (November 2022: 28,449. November 2021: 19,260). The market is also less competitive; for those previously sidelined due to affordability, now is a great time to take another look.

While interest rates may remain a concern, they’re not forever. As the adage goes, “You marry the house, you date the rate.”