No landlord exodus from Budget, finds survey

Photo / Greg Bowker

Fears of a mass exodus of investors from the property market as a result of changes to the treatment of tax following this year's budget, have failed to materialise, latest figures show.

A survey by property investment website landlords.co.nz and Mike Pero Mortgages has revealed 12 per cent of landlords are thinking about selling their properties and just 1.7 per cent said they are definitely exiting the market.

The Government announced it will end depreciation tax breaks on buildings, removing the incentive for people to invest in property purely for tax reasons, and prompting speculation the market would be flooded with properties.

The changes will take effect on April 1 next year.

However if the budget was designed to put residential property investors off their stride, then it appears to have failed, landlords.co.nz publisher Philip Macalister said.

Property investors aren't happy with the changes to tax and depreciation in the budget, but only a small proportion are planning on quitting the market.

The majority of investors said they will continue to be landlords and 21.4 per cent said they will be buying more property.

Investors bought houses for sound, long-term reasons, rather than speculation and quick gains, the survey found.

Macalister said investors were not interested in putting their money into other investments.

"They like the bricks and mortar and that they can see changes to their investment."

Many investors did not trust other forms of investment because they couldn't see what they were buying, he said.

The large majority of respondents (95.6 per cent) adopt a buy and hold strategy when purchasing property, however they were evenly split over whether they were trying to achieve capital gains or income.

Just over half of those surveyed said they are investing, while 47.6 per cent said they were looking for capital gains.

Mike Pero Mortgages chief executive Shaun Riley said the budget could have been a lot worse for property investors and the market realised this.

While there were mixed views about how house prices would track during the next six months, investors were clear about what direction rents would move.

The majority of landlords would recoup any lost income through the removal of depreciation tax breaks, by hiking rents, Riley said.

"The results show that property investors in general are long-term investors," he said.

Nearly two-thirds of investors (59.6 per cent) survey said they plan to increase rents during the next six months.

Macalister said the changes in the budget were not enough to put people off property investment, but would change the way they ran their investment.

"The bottom line is the government is forcing rents up for most of those New Zealanders who living in rental properties," he said.

Macalister said any increases should be small and incremental, or investors risked pricing themselves out of the market.

"It needs to be fair. If tenants see rents going up by $50 per week, they will be out of there," he said.

Investors would be better placed to make an increase of $10 per week now and another small increase in six months time, he said.