Time to breathe and pause or just breathe?

Government Laws

Before writing this article, I canvassed some key clients for their thoughts on what may be of interest and had the following response from one. He replied:

“How about talking about Stupid Govt laws and the flow-on effect of reduced cash-flow and financing implications, and what investors are considering to reduce the impact on their portfolios (selling old stock, buying commercial, building new, renovating, or just reducing debt)?  Then again maybe that's too controversial and you could just make comment on how busy you are despite the new tax laws and the real roadblock is the lack of listings.”  

Well, indeed my colleagues and I are very busy, despite the new government policies now being enforced by the banks.  Busy with new business restructures, refinances, top-ups, new lending for new builds, new lending for subdivisions, upgrades of the family home - and few if any of my clients are selling off.  Interestingly though, they are seeking advice from their accountants with regards to optimizing structures – that’s what happens when governments change the rules. 

Not only has the government focused on punishing investors and creating confusion and massive competition for the new builds that are available, but they have also cut off the supply of cheap money – which many will be happy about until we consider the facts: 

·         The focus is supposed to be on helping first home buyers get into homes.

·         The focus is supposed to be on cooling the market.

·         Land for new builds is still slow to be released and given the cost of building materials and the cost of borrowing increases, who will be able to afford them? 

·         Not likely the first home buyer and arguably not investors unless they can really push the yields up/justify the use of money on this asset/investment class.

·         So, how will this impact rents for those that can’t afford a home? 

So, then to the other point regarding the “Real Roadblock is the lack of listings”?  I’ll expand this to: “The lack of listings, available land, cost of building materials, availability of labor, increasing inflation, cost of compliance and health and safety.”  Yes, indeed, this is a real issue as there is unquestionably underlying pent-up demand for housing – from both those wishing to purchase AND those that wish to rent a home. 

However, the fact that, in recent days and weeks, listings are now being priced is a certain sign that things are returning to somewhat of a more normal market. 

That said, what remains to be seen (per my earlier point) is whether the underlying issue of supply and demand will continue to prop up the market.  The underlying supply/demand figures suggest they will.  However, as we go to print, the rapid rate of interest rate increases, build costs, and RBNZ/Commerce Commission policies may change the natural course of events – it’s a bit of watch and see currently.

Clients still missing out

Despite property being priced/by negotiation or tender, I still have clients missing out on a daily basis so it’s still super competitive out there – no question in my mind. However, it certainly doesn’t seem to be as frenzied and certainly, the signs are there that auctions may have done their cycle for now.

 So, if we consider where we are at, I would say that, with the increasing interest rates, tightening of policies relating to Debt to Income/Tax Deduction/Responsible Lending and CCCFA (Credit Contracts and Consumer Finance Act), it’s most certainly getting harder for prospective and existing borrowers.  What was a straightforward logical, sensible application for lending previously is no more. 

The ability for investors to expand their portfolio is no longer straightforward - however, my sense is that we are in somewhat of a bedding-in period – to some degree, similar to when AML was first introduced (Oh, the memories) and that lenders (and the industry) are in somewhat of an adjustment period.  After all, houses still need to be built, people and businesses still need to borrow and lenders have a business to run…..

So, where to from here for property investors?

Well, I believe that opportunities are about to come about (in the coming few years ahead) as the market stabilizes a little and there is less frenzied competition. It provides a chance to pick up opportunities in a more methodical, considered manner.  I am seeing lots of interest from investors looking to develop the sites already owned/build new/gear up against existing to diversify into commercial/other investments etc.

A shift to the right?

There also seems to be some hope on the horizon in the form of a shift toward the right – as evidenced in recent polls.

The inability of this government to understand that ideological tinkering simply creates unintended consequences can sadly, only be fixed, through returning control to those experienced in the real world – not simply experienced in theory.

This government has a very clear agenda of targeting anyone creating wealth and ensuring they make an example of them.  There are inflationary impacts they have caused from their lack of action and whack-a-mole policies. And then, to compensate, they are constantly providing handouts in the form of financial support and benefits. which have resulted from the complete mismanagement of our social and economic frameworks. Whilst at the same time they are attacking anyone who wants to apply a conscious free-market/risk-based approach (as is their right) to their lives. These policies can’t stop soon enough.

But don’t worry folks, I am sure this Government will gladly pay the rent if your tenants can’t afford it because the bad landlords increased the rent to compensate for the government interference in a high value offering to those that want and need it – often, those same people that were saving for their first home purchase….

However, I digress… Fortunately, this too will pass………

Final thoughts:

For the record, I think with interest rates going up (coupled with the removal of tax-deductible interest expense), landlords will again put rents up to help cover borrowing costs.

I also believe that the regions are about to get hammered over Summer once Auckland is allowed out.  In a recent survey of Aucklanders, 51% said they were considering leaving the city.  That’s over 750 thousand people so even a fraction actually following through is going to have an interesting effect on both Auckland and the other locations they buy and settle.