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Definitely In For The Long Haul

Definitely In For The Long Haul

Investors are feeling cautious, but there’s an overwhelming sense they are playing the long game ... and for the best of reasons, Joanna Mathers discovers.

By: Joanna Mathers

8 July 2024

New Zealand Property Investor’s annual survey is the perfect opportunity for investors nationwide to share their experiences. We’ve lived through volatile times, with many highs and lows, but 2024 looked to be an easier year with a government more kindly disposed to landlords.

As the year has progressed, it’s become evident that even a sympathetic government won’t ease many landlord woes. A (watered down) reinstatement of tax deductibility, plus the promise of more favourable tenancy rules, have been bright points. But high interest rates, stalled property prices, and a glut of rental stock has brought challenges to the sector.

According to our survey, investors are feeling cautious. There’s a reluctance to buy, due to interest rates, low rental returns and the hangover of Labour government regulations.

But there’s an overwhelming sense that property investors are in for the long haul. Our respondents keep their properties for decades, providing renters with houses they can truly call home. And they are committed to staying the course.

Age Indicator

Most landlords who responded to our survey were aged over 50. The largest age demographic was 50-65 at 37.1 per cent, with 36.6 per cent being over 65. Only 26 per cent of respondents were under 50. A large percentage (63 per cent) are male, with only 35 per cent female.

When it comes to location, 29.7 per cent of respondents live in Auckland, but most landlords are located outside our biggest city. Wellington sits at 11.9 per cent, Canterbury at 9.9 per cent, and there is a decent sprinkling of investors in Otago (8.9 per cent) and Waikato (7.4 per cent). The remaining investors are located throughout the country, with one respondent located in Australia.

The location of investment properties followed a similar pattern. Around 33 per cent of investors owned properties in Auckland, with Canterbury the second highest, at 17.4 per cent. Waikato and Wellington accounted for 15 per cent each and the remainder of investment properties were scattered through the country.

‘I started investing to give a great level of income in retirement and elevate the burden of our children needing to look after us in old age’

Statistics can give broad brushstrokes, but individual commentary offers more detailed insights.

When asked the reason they started investing, the following comment is indicative of general investor sentiment: “I started investing to have extra income and have something to pass on to children”.

New Zealand property investors are looking to the future. Very few (only 1 per cent) are using property investment to make quick money. Most (91 per cent) reported they either adopt a “buy and hold” or a “buy-renovate-hold” strategy. And this is reflected in selling behaviour; more than 70 per cent have either not sold within the past two years, or never sold, a property.

Buying behaviour follows a similar pattern; 65 per cent stating they have not bought a property in the last two years.

We can see this played out in CoreLogic statistics for the month of May, with mortgaged investors only accounting for 21 per cent of buyers.

According to chief property economist Kelvin Davidson, debt-backed investors are being stung by the negative gap between gross rental yields and mortgage interest rates.

“Investors with cash may be able to find bargains in the current market,” he says, but this only represents 14 per cent of current buyers. Again, our survey mirrors this ... only 10 per cent of respondents have purchased in the past three to six months.

‘My biggest win as an investor is financial independence and knowing I’m providing good homes to people’

Tribunal Use

One of the notable results from the survey is around use of the Tenancy Tribunal. In our last survey, only 38 per cent of respondents had used the tribunal; the figure this year sits at 53 per cent. Comments around the service vary: some saying they felt the tribunal is biased towards the tenant or very slow, with others stating it is effective and useful.

David Faulkner, of Property Brokers, says this uptick in applications isn’t surprising. Tenancy Tribunal data shows nearly 1,000 more applications to the tribunal from landlords in Q1 2024 than in Q1 2020 (the Covid-affected years were unusual and not counted here).

Most of these applications were around rent arrears; the percentage is up from 79.3 to 90 per cent of the overall total. Faulkner says this can be attributed to the cost of living and people unable to keep up with the rent.

This trend will increase the waiting time for an already notoriously slow process. Faulkner, and many others in the industry, believe a dedicated rental arrears service would do much to improve the tribunal service.

“Tenancy Tribunal is a dispute resolution service, and rent arrears isn’t a disputes matter,” he says. “There should be a separate tribunal to deal with rental arrears and this would take a lot of the time pressure off the main service.”

The survey also reveals dissatisfaction with the decision to ditch property management regulation. Faulkner has written about this and believes it’s due to several factors.

“ACT are anti-regulation, and this would have played a part in the decision. But it also may be government finances are in such bad shape there is no appetite for more regulation at the moment.”

‘The Tenancy Tribunal process is very slow. Needs a major overhaul to speed up the process and also needs to have a more consistent result so the outcome doesn’t depend on which adjudicator you get’

Regulation changes

Commentary from investors around the reintroduction of interest deductibility, 90-day notices and bright-line reduction are generally favourable, but there have been a few outliers.

With regards to bright-line, one respondent stated: “Bright-line should be more than five years or there should be a capital gains tax.”

Another noted, “It could get more people in buy, do up and sell, rather than being in it for the long game.”

On the highly contentious matter of interest deductibility, one respondent noted: “I don’t think it should be 100 per cent deductible. Fifty per cent would be more appropriate”, with another echoing the sentiment: “Good in some ways but maybe only on 50 per cent deductibility, otherwise some investors rely too much on this.”

But the vast majority of respondents were extremely happy about the reintroduction.

This comment reflected the overarching sentiment: “It should never have been removed. A short-term political policy by Labour and Greens that would have backfired in the long term.”

Owning an investment property (or properties) is challenging. But the results of the survey reveal that as a long-term, wealth-generating proposition, it still makes sense. The words of one respondent ring true: “We started investing as a retirement plan. This has been so successful that we are also planning on assisting our children.”

Property investor insights

  • 72 per cent of property investors live outside of Auckland.
  • 69 per cent of investors hold investment properties outside of Auckland.
  • 28 per cent of investors own under five rental properties.
  • 50 per cent of respondents have been investing for more than 20 years.
  • 14.2 per cent investors sold a property in the last 12 months.
  • 52 per cent of respondents own or are interested in buying a commercial property or investing in a commercial property fund.
  • 23.5 of respondents are debt free.
  • 69 per cent of respondents are positively geared.
  • 47 per cent of respondents believe property prices will stay the same in the next six months.
  • 51 per cent of investors increased their rents in the past six months.
  • 43.2 per cent of respondents have increased their rents by between 6-10 per cent.

Survey Highlights

Survey Respondents Share Their Wins And Mistakes As Property Investors.

Investor Wins

  • ‘Bought a property that had one house 98 per cent built and a second consented but not started. Extended family changed their minds and wanted out. We negotiated a very good deal due to the risks associated with getting CCC for the nearly completed building and getting the second building built and very few of the risks came to fruition. Thus significant increase in value within 18 months and positive cashflow’
  • ‘Two excellent purchases where the yield far exceeded what you would expect; houses were high quality and well maintained’
  • ‘Rent increases over time – it’s beyond what we dreamed of’
  • ‘Top notch property management and still got all the same tenants’
  • ‘Buying a commercial block that paid all the debt attached, including maintenance’
  • ‘Building our own new rental properties and keeping them’
  • ‘Having purchased other properties that have had significant capital gains to be able to purchase other properties. And now being debt free’

Investor Mistakes

  • ‘Not buying more earlier! Being too conservative with risk. Giving too many chances to poorly behaving tenants’
  • ‘Not buying more properties when we had considerable knowledge at the time’
  • ‘Not buying more property. Not growing a tougher skin sooner with respect to tenants and their behaviour. Overall I’ve been pretty lucky with tenants. Most have been great. But some are good at telling you their sob story and trying to pull you into their drama. I do have a relationship with tenants, but I hope they understand it’s a professional one. Sometimes when social issues occur they can try and blur those lines. I have to push back and make my position clear’
  • ‘Trusting people to their word, it’s amazing what people forget when it comes to financial transactions or commitment to contracts’
  • ‘Not buying more properties 20 years ago, and to not have done a flip property to help with cashflow. Being cashflow poor for 15 years has hugely affected the quality of life and upbringing experiences of our children’