The image of property investors needs a rethink
The government’s recent overhaul of the housing market has targeted investors hard, though it has been difficult to draw sympathy from aspiring first home buyers struggling to get on to the property ladder. However, one mortgage adviser said there is an “urban myth” surrounding New Zealand’s residential property investors.
Squirrel founder John Bolton said the prevailing image of property investors is that they are the “super rich” of the country, though in reality, few of the very wealthy purchase residential property. He said the new tax rules will have the hardest impact on “mum and dad” investors who rely on their properties to make savings, and that, ultimately, the value of those assets is also likely to fall.
“The problem I have is with the fact that you can put such a big policy change through without really understanding the downstream implications,” Bolton commented. “The challenge with the removal of interest deductibility is who it really impacts.”
“The reality is that there’s a bit of an urban myth around who property investors are, and there’s this narrative that they’re driving around in Bentley’s and Rolls Royce’s and they’re the uber rich of New Zealand, and that couldn’t be further from the truth,” he explained.
“The reality is that really wealthy people don’t buy residential property - they own the Auckland CBD, commercial property, land banks and companies. The last thing they want to do is deal with tenants. So, the bulk of residential property investors are just regular, hardworking mums and dads who want some level of financial independence.”
Bolton said that there are from 200,000 to 300,000 property investors in New Zealand, and the majority of them “look like everyone else” - careful with their finances, and keen to save as much as possible.
When it comes to house prices, Bolton said that even if they don’t fall immediately, we will almost certainly see a downward impact over the long term.
“Fundamentally, you cannot take 30% of the revenue out of any form of asset and not expect the price of the asset to fall,” he said.
“So, this should have a pretty big and negative impact on house prices. That might not happen because we have a property shortage and a lot of buyer demand, so one wouldn’t expect it to translate straight into house prices. But if you look at it in the longer term, you’d definitely expect it to have an impact.”