Staying Positive in the Face of Change
Yes, recent government announcements on housing mean there are policy changes to navigate, but it’s not all doom and gloom, says Nathan Miglani, Mortgage Adviser with Loan Market Paramount.
The announcements shouldn’t really have taken anyone by surprise. With such extreme property value hikes over such a short space of time, the government was under pressure to address the issue of housing affordability and avoid a housing ‘bubble’.
The result was a package designed to make things easier for first-home buyers while cooling the investment market, especially property speculators looking to cash in on property price hikes by buying and selling in the short to medium term, and it has caused jitters in some circles. Some investment property groups have been very vocal with worst-case scenarios about what might happen in the wake of these changes, but in my view, a lot of this is simply scaremongering.
The reality is that market conditions are always changing. Only a few years ago, interest rates were around 6 per cent – a long way from the record-low interest rates we are enjoying right now. Look a little further back and interest rates were more like 10 per cent! For this reason, I am always cautious with my advice. I would never encourage clients to take on excessive debt and my recommendations are always based on individual circumstances. Whenever you’re investing, it’s important to anticipate change and ensure you’re going to be in a financial position to weather it.
If you’ve got plenty of equity in your family home, in most cases my advice would still be to buy that investment property. With interest rates as they are, and property in Christchurch still reasonably priced compared to other centres, it makes financial sense – if you’re willing to be in it for the longer term. Yes, investors are no longer able to offset interest expenses against rental income when calculating their tax bill, but if your rental is cash-flow positive then owning it is still a good move.
This might mean that an existing property is a better buy than a new build. A new build is not cheap and construction costs look set to increase: if it’s located in a not-so-convenient location, the rental income might not cover the cost. Consider on the other hand spending $420,000 on an existing unit near Westfield Riccarton that earns rental income of $450 per week. Crunch the numbers and it’s still better value than building new.
Nonetheless, some of our investor clients are now selling some of their rentals and shifting into property development. Expect to see a lot of new multi-unit developments being built, especially in hot spots like Addington, Sydenham, Spreydon and Barrington. If this is something you’re interested in, please talk to us first as it’s important to know the numbers before approaching the bank. At Loan Market Paramount, we’re specialists in development finance, so we can help you put together a great application – and with access to all the banks, as well as a range of non-bank lenders, we can ensure you have all the options.
At the end of the day, change is what you make of it. Most of our team members have an investment property and no one is planning on selling – or increasing the rent! – so don’t buy into the doom and gloom.
Years of experience mean Nathan Miglani knows how to give you the best possible chance of success with your mortgage application. Passionate about helping you through the process of buying a home or business, he’ll find the best deal for your unique circumstances. loanmarket.co.nz/nathan-miglani
