Residential investors switch to commercial properties

Commercial property demand follows launch of new housing package

Residential investors switch to commercial properties

Residential investors are becoming more interested in buying commercial properties following recent changes to rules around owning residential property, according to Colliers International real estate agent Benet Carroll.

Last month, the government announced a new housing package to address the housing crisis. It targeted investors buying and selling homes and doubled the bright-line test to 10 years, meaning investors must pay 39% tax on profit from an investment property sold within 10 years of the purchase date. The government also removed the ability of residential landlords to claim full tax deductions on mortgage interest payments for an investment property bought after September 30.

Carroll revealed that some residential investors are selling their homes to buy commercial properties following the government’s announcement of its new housing package.

“The changes may have had an effect on residential investors who are looking at getting out. They see an opportunity in commercial investments while interest rates remain low and demand for properties increases,” Carroll said, as reported by Stuff.

Residential property investor Richard Woodd said a combination of housing shortage, low mortgage rates, and low returns on term deposits led to soaring house prices.

Property investor Matt Hareb​, meanwhile, who owns many commercial and residential properties in Taranaki, added: “If you are running a business, you are looking for returns of less than 10 years. No-one wants to buy a residential property and be taxed 39% when you sell.”

However, Real Estate Institute of New Zealand (REINZ) Taranaki ambassador Garry Malcolm ​insisted that demand for homes remains high across the board and shows no sign of dropping.

“First-home buyers have not been put off, and people are clamouring to buy while there are low-interest rates and a lack of houses for sale,” Malcolm said, as reported by Stuff.

“The impact of the changes may take longer to be felt as small investors get out and bigger investors adopt a wait and see approach. For smaller investors, it may be a good time to sell and reap the benefits of high prices.”