After decades of defying gravity, the property market is discovering that risk is real

Tuesday, 12 May 2026

Martin Hawes is a financial writer and presenter, and has written 25 personal finance books. He writes a weekly column.

OPINION: There seems little prospect of a major recovery in residential property prices anytime soon. Property is no longer the one-way bet that it used to be; now, potential property investors really do need to consider the other side of investment. Risk.

During the great New Zealand property boom from the 1970s to the 2020s, no one seemed to bother to think much about risk. People believed that any downturn would be short-lived and was simply an opportunity to buy. In fact, experience neatly confirmed just that: the property market ran and ran with only limited short breaks.

Interest rates have generally fallen over the last four decades or so. Moreover, over the same time finance became much more available as regulation was relaxed and banks saw mortgage- lending as a major profit centre. This led to more buyers willing and able to buy.

Cheaper, more readily available finance is unlikely to be repeated to the same extent, but over the last few decades they have certainly helped feed the ever-upwards direction of house prices.

Read more:

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• End of the ‘accidental’ property millionaire: Why years of booming returns are behind us

• What to do when you realise that your investment barks like a dog

However, even though the property market knew just one way for decades (upwards), you should know that there are risks involved when buying a rental.

The usual risk, applicable to all investment markets, is that the market simply may not perform as expected – perhaps it goes down and stays down. There certainly have been falls in the last 50 years or so in the property markets, but not long and deep enough to make people worry much about risk.

We are now four years into this slump and no strong bounce in sight. With an already fragile market and the possibility of increased interest rates later this year, there’s a risk we see an extended and deeper fall.

Slumps are common in all investment markets, but they can have greater impact for property investors. This is because most properties are geared (i.e. investors use debt to purchase). Debt means that not only are returns enhanced but so too are losses. With geared properties absolute loss is possible; in a big property slump, you could easily lose everything that you had invested, and some.

Here’s a simple example of absolute loss: if you purchased a property for $500,000 on a 20% deposit you would have put $100,000 into the purchase. A fall in the property market of about the same size as we have seen in New Zealand since 2022 (i.e. a market fall of nearly 20%) would mean that you have lost the $100,000 that you put in (as well as the costs of purchase, costs to own and costs of sale ).

When things get bad, banks can step in; that can mean the mortgagee (the bank) may have a say in the timing of a sale. Banks can (and sometimes do) go for a faster sale to limit further potential losses. It then becomes your job to make up any shortfall.

As well as the dangers that are inherent with the gearing effect, there are two other items that increase the risks for property investors. First, it is often hard to sell in a slump at any reasonable price. In bad times like we have now, many people may try to sell their properties but find no takers. However, instead of lowering the price and meeting the market, they take down the “For Sale” sign. This means they become stuck with an underperforming asset that they may have to ride down further.

Second, residential property is a political football – and that has never been more apparent than it is today. Amongst our political parties there is now a consensus that the country is better off without unaffordable house prices.

Nevertheless, although there is consensus regarding that desired outcome, the means to create the outcome differ. Some parties promise special taxes or tax treatment for property investment, while others want to subdivide more land and build more houses.

It seems unlikely that New Zealand will go back to the benign climate of tight supply and favourable tax treatment that was so good for property investors in the past.

Markets hate uncertainty and there will be a lot of property investors eyeing the political polls and considering the Reserve Bank’s next step. They might also be thinking about the current price of residential property – in spite of the slump it is still not cheap. Investment always comes with risk - property is no exception.

Martin Hawes is not a financial adviser and the information and opinions here should not be taken as financial advice.