Can they work or is there ‘an elephant in the room’?
A lot of comment has been made around the Government’s changes to Residential Property Investment over the last few days, so I thought commentary from me, with nearly 30 years in Property Finance, might bring some clarity.
Governments of any political persuasion should stay out of the property market, as they do not have the skill set or experience to meddle and often end up hurting those they are trying to protect. That is certainly the case this time and here are my reasons why.
1. By increasing the so called ‘Brightline Test’ (this is the number of years an Investor must hold a property before selling, without paying tax on the profits) to 10, the Government have further restricted supply, as Investors will hold onto their property for longer.
2. Landlords are facing fairly hefty increases in costs, on top of the healthy homes initiative (which is a good thing) they are now losing the tax breaks which all other businesses enjoy. This will put more pressure to further increase already high rents. This then leads to…
3. Less money to go towards deposit for First Home Buyers. Which leads to…
4. The age of high LVR (loan to value) mortgages for First Home Buyers is here to stay, as deposits are harder to save for and prices will continue to rise.
5. On May 1st 2021, the Reserve Bank will reintroduce its lending restrictions. This is catastrophic news for First Home Buyers, as Banks can only lend up to 15% of their lending book at over 80% loan to value. This is the return of the lottery for First Home Buyers. Whilst I agree with lending restrictions to Investors, I also believe lending to First Home Buyers should be a commercial decision for the banks and non-bank lenders and the Reserve Bank should step away.
6. Finally, as far as we know, most New Builds are exempt from the above. However, we are facing huge shortages of materials, skilled labour is in high demand (therefore higher cost) and some builders are refusing to do fixed price contracts, which is what a bank requires. So the impact of these exemptions will be minimal.
Do I have the magic solution?
No unfortunately I don’t. However what I do know is that the above changes will result in higher prices, more First Home Buyer frustration and the Government having to find accommodation for 1000’s more Kiwis who will be locked out of the private rental market and unable to purchase.
Thank you for reading – I’m Jeff Royle, Financial Paramedic and passionate supporter of First Home Buyers.
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