There may be tax breaks ‒ but it’s not all rosy for property investors

Saturday, 10 August 2024

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Property owners unable to sell their houses in a falling market are finding themselves jostling for space on the rental market as listings soar.

The combination of a range of unfavourable economic conditions, including higher unemployment rates, higher interest rates and the cost of living crisis, are deterring buyers from making a purchase.

As a consequence, more homeowners are seeking tenants for their houses, leading to a flood of listings in the rental market.

Trade Me Property’s customer director Gavin Lloyd said they had seen a 15% increase nationally in rental listings on Trade Me in the January to July period, compared to last year.

In July alone, there was a 46% increase in rental listings, compared to that time last year.

“With houses taking longer to sell, this increase in supply may be due in part to home-owners struggling with the market and opting to rent their properties out instead.”

But working against the rental influx is a decline in demand for rentals, which he said was “likely upping the supply of available rentals as well”.

“Additionally, the number of Kiwis leaving the country has reduced demand for rentals, particularly among young professionals who are often renters and are being tempted by higher wages overseas.”

According to property listings site realestate.co.nz, Wellington had a 55% rise in new listings in July, with 324 on the market.

In June, there were 276 new rentals, while in July last year, there were 182.

Adam Cockburn, a salesman at Wellington real estate agency Lowe & Co, has noticed a drop in activity at open homes and fewer offers on properties.

This was natural with an influx of property on the market and fewer keen buyers, he said.

Some landlords had been unrealistic in their rental pricing.

“It’s completely futile. They sit there being completely stubborn, wanting more rent than the market’s wanting to pay and as a result their property just sits there empty,” Cockburn said.

“I always say to people like that, you're better off getting 90% of what you want than 0% ‒ meet the market and move on.”

But Matt Ball, spokesman for the New Zealand Property Investors Federation, said this wasn’t consistent across New Zealand.

While the masses of rentals are outweighing the tenant numbers in Wellington, areas such as Queenstown or cyclone-affected Gisborne were facing the opposite issue.

On Trade Me, there are 40 listings for rentals in Gisborne. In Wellington, there are 1385.

For Queenstown, “it’s just always been like that, there’s always a shortage of properties for rent”.

“There is a huge amount of pain in the sector right now. Interest rates are still high, council rates are up, insurance is up and building and maintenance costs are always going up.”

But Ball said there was not much anyone can do, “with costs so high very few could afford an upgrade to their property, and in any case, rent is set by supply and demand, so the cost of an upgrade may yield little return.”

For the next six months, there would be some “serious pain”.

Infometrics chief executive and principal economist Brad Olsen said that while Wellington’s rental future may not hold plummeting rental prices, the glut of rentals would “definitely dampen the ability to raise rents as much as you previously could”.

“From a landlord’s point of view, low rent is not necessarily good … but low rent is better than no rent when it comes to … cash flow consideration.”