House prices on Budget brink

The Budget is expected to change the tax treatment of rental property. Photo / Herald on Sunday

Uncertainty over next week's Budget with its potential for tax increases for landlords is being blamed for a sluggish property market.

Quotable Value figures released today show property values are 6.1 per cent higher than they were at this time last year.

The national average sale price for the three months to April was $405,235 - down from $407,133 in March and $416,074 in February. Nationally, property values are 3.9 per cent below the market peak of late 2007.

QV Valuations spokeswoman Glenda Whitehead said sales in April had been slow, with fewer properties for sale on a "flat" and "patchy" market.

While this was expected because of Easter and school holidays, doubts around the May 20 Budget, as well as possible increases to interest rates, were holding house-buyers back.

"The property market remains relatively subdued as both buyers and sellers carefully consider their positions," Ms Whitehead said. "There is little urgency, and many people are waiting to see the exact nature of the changes in the Budget before deciding their next move.

"If confidence returns then we might see an increase in activity during the winter months. However, there is also the likelihood of interest rate rises in the middle of the year which will keep pressure on borrowers."

Ms Whitehead described the market as mixed. In West Auckland, there was still reasonable activity in the $370,000 to $550,000 range, but in Auckland City there appeared to be a lot of "cherrypicking" - a mix of healthy and lingering sales.

The Budget is expected to change the tax treatment of rental property after the Tax Working Group reported that in 2008, the $200 billion invested in rental housing yielded net rental losses totalling $500 million.

The Budget is expected to include measures to stop property investors offsetting their losses against income and other taxes.

But property investor and commentator Olly Newland said it wasn't just a fear of tax increases that was affecting confidence.

A "hangover" from the recession had generated a "why bother" attitude.

"There's no pay rises coming, there's no point in trying hard ... profits are hard to make," he said. "I just think there's a general feeling of malaise around. The whole urgency's gone out of everything.

"People are nervous about putting money into anything."

Property Investors' Federation vice-president Andrew King said the possibility that rental property would be targeted for tax increases was of great concern to the industry.

"The campaign against property is grossly misleading and could lead to unfair tax increases that may see rental prices for tenants increase and the value of property in New Zealand decline."