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Investment Update January 24

The Bayleys Canterbury residential investment team has started 2024 experiencing two unfamiliar trends.

Articles-Investment.jpg Firstly, over the two weeks of the festive break, five residential investment sales were concluded. It is highly unusual to close sales over the holiday period – let alone five. In our experience, we would normally only see this occurring from time to time when the property market is in full flight.

Secondly, upon returning to the office in the second week of January, we are seeing high levels of enquiry from both existing database members and a substantial number of enquiries from people with whom we have had no previous connection.

In both instances, this level of genuine buyer enquiry is not expected so early in the year. We have been investigating what could be contributing to this interest in investment property in and around Christchurch.

Looking at market data, we see there are approximately 15,089 residential properties for sale in the city and its urban areas. That is the lowest figure since the fourth quarter of 2022 when the market saw a sharp decline in both the volume of stock available to purchase and a corresponding decrease in prices.

While the first-time buyer market remained motivated throughout last year, the investor market instead by and large was stagnant – with many waiting for the outcome of the general election to be confirmed, and others cautious about where the official cash rate was heading.

With the new Government now in situ, and mortgage rates looking to have stabilised, the residential property investment ‘switch’ has well and truly been flicked back on – hence the frenetic activity we experienced over the summer holiday period.

To reiterate the key core elements of how the new Government will impact the residential investment property market, it will be peeling back mortgage tax deductibility for landlords to previous levels.

The restoration of interest deductibility will see:

  • 60 percent interest deductibility kept from April 2024 – rather than being reduced to 25 percent in line with the former Government’s timeline
  • 80 percent interest deductibility available from April 2025

and

  • 100 percent interest deductibility reintroduced from April 2026.

  Furthermore, the current Government’s readjustment of taxation in the residential investment properties will see the bright-line ownership/sale timeline test returned to two years – down from the current 10 years – restoring the bright-line test to what it was when introduced in 2015.

It also looks like the end of the automatic rolling over of fixed term tenancies – which will allow for greater flexibility of property management for dwelling owners, particularly those with accommodation in holiday destinations where owners wish to spend time over the summer period enjoying their property. Landlords will be able to terminate tenancies using the periodic tenancy rules and other grounds for eviction with the reintroduction of ‘no cause’ notifications.

Our market feedback is mirrored in the latest commentary from independent property economist Tony Alexander, who notes: “My most recent real estate agent survey shows 22 percent of agents noticing more investors in the market. This reading is relatively high.”

Meanwhile, Tony Alexander says investors should watch out for the impact that record migration numbers will place on the market. “The pressures which will manifest themselves largely in the rental market, will push up rents and encourage more people to become investors,” says Alexander. As ever, most anecdotal conversations we are having with our clients indicate that investors intend to hold onto their assets for at least 10 years. Similarly, those same investors are clearly showing a preference for purchasing both new and existing standalone dwellings rather than townhouse or terraced style premises.

As always, the Bayleys Canterbury residential investment team is happy to advise both investors and vendors on where our research sees the market currently tracking. Please feel free to get in touch to discuss this in person or over the phone.

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