Property investment 2022: the housing market is on the move

When it comes to property investment, things can change fast – and this year, we’re seeing that in real-time. Since late 2021, interest rates and inflation have been on the rise along with new lending rules, changes to investor tax and the continuing effects of COVID. It’s no wonder that would-be investors are feeling a little less confident about taking on more property.

Here’s a rundown on market trends you should be considering, and whether now is still a good time to invest in property.

House prices are falling

For the first time in over a decade, property prices have fallen – with some areas dropping as much as 2.4%. However, even if prices drop by 10%, as predicted by ANZ, they will still be higher than they were only a couple of years ago. While the prospect of a bubble bursting is scary, New Zealand will always be obsessed with real estate. So, if you have the time and patience to hold on to a property long-term in this country, it could still be a good place to keep your money safe.

Interest rates are still going up

After historically low interest rates, the recent increases have come as a shock to current and potential borrowers. These new figures have had a big part to play in the softening of the housing market. For example, someone who could have serviced a $900,000-mortgage last year might only manage an $800,000 loan with the increase in interest – people simply cannot afford to spend as much as they once did.

If you have good capital to invest, this could play in your favour – it may mean less competition for homes and lower pricing, which will offset some of the increases in borrowing costs.

Inflation is on the rise

Similarly, inflation and the highly publicised increase in the cost of living will also weaken the property market going forward. This is because fewer first-home buyers and investors can afford to take on that much debt. However, if inflation continues to rise after you draw down your new mortgage, the mortgage rates will continue to increase, and this means you will end up more in mortgage repayments in the coming years. If you can afford to take the risk, it might be beneficial.

The borders have opened up

New Zealand is likely to see an adjustment in the population in the coming year. This will be due to younger Kiwis seeking opportunities overseas and immigrants returning to our shores. Right now, this may invigorate the rental market. In the future, it will help protect long-term property prices as people settle permanently and look to buy.

New builds are booming, but supply chain issues will bite

With so many government incentives, there has been a big focus on building new homes over the past few years. Just under 50,000 consents were granted last year – a new record, up 20% from 2020. However, the boom is likely to slow. Smaller developers are now squeezed by supply chain issues and increasing costs of borrowing. And demand for new builds is dropping as existing homes become easier to buy. Further, with labour shortage, the completion and availability of new builds in the coming months or years may also get delayed.

Ease of borrowing has slightly improved

Early this year, borrowers struggled to navigate the newly amended Credit Contracts and Consumer Finance Act (CCCFA). Thankfully, the government has now working on wounding back some of the restrictive requirements. It’s unlikely the LVR requirements for property investments will change much – you’ll still only be able to borrow 60% of the purchase price.

It’s more expensive to be a landlord

Last year, the government removed the ability of property investors to claim interest expenses against taxable income. This makes renting properties to tenants different from other businesses. Alongside fewer tax breaks, landlords have been paying more on council bills and rates each year.

An opportunity to snap up a bargain

Inflation and rising interest rates are a definite downside for current investors. However, depending on your financial situation, you could find a good opportunity to invest as house prices continue to fall. Perhaps in the second half of this year, if the market continues to slow, it may be the first chance in years to grab yourself a bargain in the New Zealand housing market

Are you ready to invest in property this year? Call the team at Global Finance today – we would love to help!

**These are general guidelines and are by no means a reflection of bank or lending policies