However, despite undeniable changes in the market, commentators say that some investors are still active and have the opportunity if they know where to look.
So what is the status of the real estate investment market? And where do potential investors start?
The challenges for potential landlords are obvious and ever-increasing.
Economist Benje Patterson said the environment is “a very challenging environment” for anyone looking to buy a home as an investment.
“The current environment has several aspects that push everything except the brave, and most long-term investors stop investing in buying rent in most parts of the country. Includes falling home prices, stricter credit terms, and regulatory changes. “
According to Patterson, many investors have long relied on rising capital, but home prices have begun to fall almost everywhere, so far they have fallen 5% or 6%, after inflation adjustments. It is expected to fall by up to 20%. It’s no longer a guaranteed strategy.
“Instead, in order to maintain real estate, investors need to find something that they can add significant value to or achieve a particularly strong rental yield,” he said. “The problem is that these types of opportunities are much less and in between. Many investors will choose to stand by and wait for better buying opportunities to get on track.”
He said people who wanted to act may find it difficult to access money.
Banks are allowed Lend only 5% of new loans For investors with less than 40% equity or deposits. Rising interest rates also put pressure on the ability of people to provide loans.
Those who could check the piggy bank need to figure out how to navigate the new rules.
The government is phasing out the investor’s ability to reduce taxes by offsetting the mortgage interest costs on the rent received.This is estimated to mean new investors will pay an additional $ 2,700 in taxes this year. Than those who bought before the new rules came into effect.
“Many of these factors are ultimately designed to protect tenants, but there is a risk that some investors will avoid renting at margins,” says Patterson.
“The problem with this is that such behavior could tighten the pool of rental housing currently available, making future lessors more difficult for them to access affordable housing. That is, this will have terrible consequences in the short term when other inflationary pressures are already squeezing the budgets of many households. “
Investor Graeme Fowler said rising interest rates are a major concern for investors who appear to be the most affected segments of the weakening market.
“The agents we trade regularly told me last week that investors who wanted to buy hadn’t heard from us all year long.
“Until the end of last year, he called him every week when some people wanted to buy investment property.”
But investors are still buying.
According to Reserve Bank data, loans to investors in March were $ 1.279 billion, January 2020 was $ 811 million, and March 2020 was $ 1.3 billion. I have returned to Covid-19.
Nick Goodall, head of research at real estate firm Corelogic, said there is a consistent level of investment activity in the market.
“People are still finding ways to make it work,” he said.
Yields (the amount of rent paid compared to the purchase price of real estate) are low, but rents are rising, according to Gudall. According to Barfoot & Thompson data, rents for typical agent-managed three-bedroom properties rose 1.5% to 4.5% over the year to March.
Although prices are softening, the strong labor market is likely to fall, Mr. Gudall said. He said it made investing in areas with strong local economies a better option.
He said there were also opportunities in areas that could be rejuvenated by opening borders. He said central Oakland is expected to grow to some extent as international students and travelers return to increase demand for apartments.
Gudall understands regional implications that can impact real estate performance, rather than investing just because rental yields appear to be good or capital gains are likely. Because of this, people said they had to buy in a familiar place.
“It’s full of danger.”
Many real estate investors are still talking about letting go of real estate as a way to add value, according to Gudall.
What is the best time to buy?
Ed McKnight, economist at Opes Partners, said the downturn in the market often offers the best opportunities for investment.
He said he would smile when he saw people commenting on business Facebook posts, saying it was a bad time to buy.
“Opportunities are on the decline,” he said. “When things bottom out and people start to recover, people are more optimistic and there is less incentive to accept lower prices.”
He said that opportunities can be seen in two distinct areas: new builds and significant refurbishments.
Investors were able to negotiate with developers to significantly reduce prices, he said. McKnight said he had already seen up to 15% of the move.
“You can negotiate hard with the developers. Their phone isn’t ringing right now.”
Homeowners may be happy to sit and wait for months or more at a reasonable price, but developers are engaged in the business of selling real estate and have more incentives to be flexible. Was there.
Those who purchase a new build can continue to use their mortgage interest costs to reduce their tax charges.
He also stated that the rules allow properties converted into two separate dwellings to be considered as two new builds.
Especially in Auckland and Hamilton, he said he had the opportunity to buy real estate at a lower price than six months ago and remodel it into homes and income.
“This is a complicated process. It’s not as easy as knocking up a wall. You need a code compliance certificate … but that’s a big opportunity.”
He said investors would buy, paint and rent a standard three-bedroom home, hoping for the best, and generally no longer work.
“It needs to be refurbished to the point where it can raise rent significantly. That’s what it takes to increase enough cash flow to make sense.”