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Property has always been one of the most popular forms of investment for New Zealanders. Buying a house or unit to rent out seems to appeal to Kiwis, perhaps because it’s more tangible – and easier to understand than shares or term deposits.

In the last few decades, as the housing market exploded, investors could expect to make huge amounts of money from both capital gains and high rental prices. Recently, things have changed. A slowing market, changes to tax legislation, and new rental standards mean investing in property isn’t quite as straightforward – or lucrative – as it once was.

While investing in property might be more complicated, that doesn’t mean it’s not worthwhile – with a bit of research and thought, you can still get a good return on your investment.

Market mayhem

Lately, there has been a lot of media coverage about the property market slowing down. And, after decades of rapid rises, prices do seem to be leveling out. This might be why sales are down – this June saw the lowest number of sales in five years. More houses seem to be selling under CV, but this may simply show that homes were overvalued when the market was growing rapidly. New rules banning foreign investment have also had an impact.

For investors, a slowing market can be a cause for concern – passive income from capital gains is no longer guaranteed. But it can also be a good thing. A cooling market is a buyers’ market, which means you could snap up a property at a lower price than you could before. If you hold onto the property for a few years, you may be able to ride out the downturn and reap the rewards. In the meantime, you’ll still be pulling in rental income.

The key is to do your research and find the right property in the right area – look for the suburbs that are still rising, rather than the ones that have already hit their peak. Choose solid, sensible properties that will be easy to rent, rather than flashy or unusual houses. If you’re a builder or DIY expert, you could improve your gains by making improvements – but beware of sinking too much money into renovations.

Capital gains and more

After a lot of talk and media coverage, the Capital Gains tax has been shelved for the time being. A new government could bring the issue back to life in the future, but for most investors it won’t be a factor at the moment. While this is good news for property investors, other changes to property legislation will have an impact.

The ban on foreign buyers, which came into force in 2018, is likely to have a long-term effect on competition for houses and house prices. There is also legislation in the works that will stop landlords from claiming tax deductions on rental properties, reducing tax on their other income. The bright-line test, which applies income tax to capital gains, now applies to houses bought and sold within a five-year period.

These changes may not have the impact of a straightforward capital gains tax, but they could still affect rental income and property investment strategy. The ‘bright line test’ in particular, means it makes more sense to think about property investment in the long term, rather than flipping a house (buying it cheap, doing it up and selling it quickly).

Higher standards, higher costs

The Ardern government introduced changes to rental property standards in July 2019, but landlords won’t need to comply with the standards until 2021. The new Healthy Homes standards mean that rental properties will need ceiling and floor insulation, fixed heaters in living areas, adequate ventilation, efficient drainage, and must be free of draughts.

Although this legislation could make it more expensive to invest in property, owners will have time to implement changes, and housing standards should improve across the board. The requirements are not onerous, and most are one-off investments rather than ongoing costs. In fact, if you’re a responsible investor and landlord, you’ll want to keep your property well-maintained anyway – neglecting issues like poor drainage and moisture build up can cause huge issues and long-term damage. In the long run, warm, dry, well-maintained properties should also be more appealing to buyers when it’s time to sell.

Research, patience, and expertise

The property market isn’t the golden goose it once was, but that doesn’t mean property isn’t a good investment. If you do want to take advantage of lower prices and invest in a rental property, you could get a good return, it just takes a bit more thought.

Investors need to be prepared to do their research and develop a strong strategy for their investment. This could mean buying property and riding out fluctuations in the market, or it could mean focusing on properties with solid long-term yield. The important thing is to seek expert help in developing the right investment strategy for you – don’t just jump into the property market and hope for the best.

If you invest in the property market do it carefully and you can also take advantage of the capital growth, we have seen. Growth in the last 40 years, on an average has been 70 to 100% every 10 years. It means a home which would cost $ 75000 in 1980 would now be worth about $1 Million in 2019.

Thinking about investing in property? Talk to the Global Finance team now for arranging finance on better terms and conditions and save you interest through our multi award-winning “Mortgage freedom plan”.