As market leaders in real estate, EVES is committed to providing our valued landlords and investors with the latest insights and trends that could impact their investment decisions. The year 2024 has seen dynamic changes, particularly with legislative adjustments, impacting the property investment sector. Here’s what you need to know:

Interest Deductibility Changes

The government has initiated a phased restoration of interest deductibility. Starting from 1 April 2024, property owners can deduct 80% of their interest expenses on mortgages or loans for investment properties from their taxable income. This will increase to 100% from April 1, 2025. For further details, read our full article on interest deductibility.

Bright-Line Property Rule

The bright-line property rule, which determines the taxability of profits from residential property sales, has been modified. Previously extended to periods of five and ten years, the holding period has now been reduced to two years. As such, any profit made on properties sold after 1 July 2024 will only be taxable if the property was held for less than two years. Learn more in our article on the bright-line changes.

Debt-to-Income Ratios (DTIs)

Implemented by the Reserve Bank, DTI ratios set limits on the amount that can be borrowed, relative to income. These restrictions aim to ensure that borrowers do not take on excessive debt, which is of particular importance in a fluctuating economic climate.

Under the new restrictions, the amount an investor can borrow is limited to a maximum of seven times their pre-tax income, effective from 1 July 2024. However, banks are permitted a 20% flexibility to exceed this limit under certain conditions, allowing lenders to exercise discretion when some situations warrant higher lending, whilst still working towards reducing the build up of unmanageable debt. 

Loan-to-Value Ratios (LVRs)

Changes in LVR requirements, effective from 1 July 2024, affect how much investors can borrow against the value of their property. The recent adjustment requires investors to have a 30% deposit for purchasing existing properties, which is an improvement on the former requirement of 35%.

According to Deputy Governor Christian Hawkesby, DTIs and LVRs are complementary; “LVRs target the impact of defaults by reducing the number of potential losses in the event of a housing down-turn, while DTIs reduce the probability of default by targeting the ability of borrowers to continue to repay debt. Both act as guardrails, reducing the build-up of high-risk lending in the system.”

Changes to Availability and Demand

2024 has introduced an increased availability of rental properties, contrasting sharply with the prior scarcity. In the latest realestate.co.nz Property Report, CEO Sarah Wood commented that the new regulations, paired with current market conditions, make it even more critical for those transacting to research their local market:  

“Stable prices could benefit those looking to buy an investment property. However, with a large supply of rental properties currently available, new investment buyers will need to really understand rental demand in their area.” 

“Those choosing to sell following the shortening of the bright-line test also need to price realistically. Some may struggle to get their desired price, especially if they bought at the peak of the market and potentially face selling for less than they purchased.” 

 Wood also theorised that the large supply of rental properties could be due to financial pressures on investors, with some perhaps converting short term rentals and Airbnbs into long term rentals. Nationally, new rental listings were up 26.9% year-on-year in June.

Rental prices remain fairly stable for the time being, with June reporting a 5.9% increase-year-on-year and a 0.9% decrease month-on-month nationally. This may be set to change in the coming months. Joanna Martinez-Hart, EVES General Manager of Property Management, commented that there has been a noticeable shift in the market according to EVES Property Managers.

‘We are certainly finding it more difficult to get properties rented. There is a lot of stock in the rental pool currently, in part this is due to vendors not having been able to achieve a successful sale, so they’ve decided to try and rent properties out instead. Tenants now have lots of properties to choose from, meaning some landlords may need to price competitively to secure a tenant. 

 While the lower price point of the market is moving slightly faster, over all the abundance of rental properties and longer days vacant is affecting all price bands.’

If you are wanting to discuss your options in the current market, whether that’s to buy or sell an investment property, or discuss the current rental demand in your area, we’re here to help. Get in touch today: www.eves.co.nz  | www.evespropertymanagement.co.nz  

 

*Please note: Information sourced from external parties is detailed below. EVES and its affiliates do not guarantee the accuracy of this information. Investors are advised to conduct their own due diligence.*
Mortgage Express on DTIs and LVRs: https://www.mortgage-express.co.nz/blog/dti-and-lvr#:~:text=%E2%80%9CLVRs%20target%20the%20impact%20of,risk%20lending%20in%20the%20system.%E2%80%9D
Reserve Bank's announcement on DTI restrictions: https://www.rbnz.govt.nz/hub/news/2024/05/reserve-bank-activates-debt-to-income-restrictions
OneRoof on the reality of DTI ratios: https://www.oneroof.co.nz/news/debt-to-income-ratios-now-a-reality-what-do-they-mean-for-first-home-buyers-and-investors-45598
Opes Partners on LVRs: https://www.opespartners.co.nz/mortgage/lvr