Should I get out of Residential Property?

We are often asked ‘should I go into / remain in the rental residential property sector’. Maybe we are not the best people to ask as we would have a bias towards your staying in the market – after all you are our business. BUT the reality is that there remains a strong demand for rental properties and we see this demand growing even higher.

Why? Well in our opinion there are numerous reasons to stay in the market.

There will always be in New Zealand a sector of the community that will not be able to purchase their own home. Certainly, as house prices continue to soar – the average house in New Zealand is now over $1 million and every region throughout the country has reported an increase in house values – this is becoming an even greater challenge.

The Government does not have the ability, or the funding, to provide housing to all of these people. Currently less than 25% of demand is met by the Government or social agencies and despite huge promises they have not been able to grow their stock levels at a rate anything like the rate of growth on their waiting lists.

First-home-buyers are being forced back out of the market due to higher prices. Coupled with tighter borrowing restrictions imposed by the Reserve Bank and enforced by lenders, it is much much harder to obtain a mortgage. It is interesting to note that the Government, in an endeavour to pass the blame for this onto the lenders, has now formed a committee to review just how new regulations have been interpreted by the lenders and to see what can be done to minimise some of the ‘unintended’ outcomes.

Indication are that interest rates will continue to rise. Partially to slow demand, partially in response to rising inflation, partially due to confusion in the marketplace.

Covid has severely restricted immigration into New Zealand. Many of those people who would otherwise have come here were renters. Foreign students, labourers, nurses and doctors. They at least started off as renters – many of course chose to stay here and became potential buyers. With talk now being around the relaxation of border restrictions we can only envisage a surge in immigration and a surge in demand. Demand has become tight without them. What will be the result once they start to return?

Migration isn’t just about foreigners. Thousands of New Zealanders, young and old, have found their lives in turmoil due to Covid impacts where they were living. Jobs have been lost. Health compromised. Travel opportunities restricted. They want to come home. They will not all be buyers in the market – many will be renters.

Tourists will return. Not all tourists come on pre-paid tours and stay in flash hotels. Many come on working holidays or on longer term visits and many rent property.

There are bound to be many other reasons but if you wanted to know why you should stay in the property rental market these suggestions may rekindle your desire.

 And don’t forget underlying all of this will be increased valuations. We don’t believe for a moment that increases will continue at the rate seen over the past two years but they will continue. You will see stabilisation but it is unlikely you will see any lasting decrease in value.