Look to the horizon

Look to the Horizon

Now that the prices for existing houses are dropping, one may believe that this is the opportune time to get into the market. You’re probably right. With the airlines around the world dropping covid restrictions, more people will start travelling and the moving economic creaks of the tourism industry will be heard throughout the country.

As the property investors start to peak out from behind the iron wall that the Labour government placed in front of them, they will look at what is on offer in this transient market place.

They will see the predictable higher interest rates striking at the yield and the downward pointing line graphs on the Capital ‘growth’ front. Any sophisticated investor worth their salt will survey the battlefield and find what they need to make the positive variables work for them. They will know that the property growth portion of the cycle will return and if they are going to get a bargain, now is the time to start hunting.

But they must focus on yield.

So, lets look at what the government are offering with the assistance on the yield front (1):

You can still deduct your mortgage interest payments if one of these options applies to your property:

  1. New build houses
  2. Boarding house
  3. Old re-locatable house placed on your property
  4. A new Pre-fab built offsite and located to your property
  5. Your property is held for future intention to create more housing. “The land business exemption will apply for interest relating to land if you hold that land as part of a developing, subdividing, or land-dealing business..(1)”
  6. Creating new accommodation from your existing house (must require CCC)

So are far as a net yield after tax is concerned, well there are a few options listed above that will keep the tax man from taking a cut of what is already negative cash-flow. An image of an injured fawn in the Serengeti after been mauled by a lion comes to mind. As it struggles to breathe, the IRD comes along in the form of a spotted hyena looking to take their share. However, with these incentives, the fawn shall live on, albeit a little crippled.

Ok, so the taxman is kept at bay, however over the last two years we were prepared to take a hit on yield and swap it for the more delectable character, being capital growth. Now in June 2022 we are looking at negative capital growth and negative yield. Oh woe is me..

This is when the savvy players in the market start gearing up and beginning to invest. What used to be a 7-10 year cycle has now evolved into a new beasty, given the market started to turn in early 2022. The previous downturn was 2007/8 providing us with a new and unprecedented 14 years of growth.  The growth has been so extraordinary that we have led the field globally. See the figure below (2)


Now the local results show that the bubble has burst and the FOMO (Fear of Missing Out) has been replaced by INPT (I’m Not Paying That) or so that is how the ANZ economist, Miles Workman sees the situation (3). Miles predicts a 10% drop, but of course we all remember the similar predictions from the banks when covid arrived on our shores.

If a snapshot of the market was to be taken today, Miles would be correct. This is the current situation (4):

Despite the doom and gloom expressed in the press, the graph above is a sigh of relief for first home buyers, at least it would have been if it wasn’t for the runaway interest rates. The speculators have gone on holiday, mum and dad buyers are sitting on their hands waiting for it to fall further and the investors are saying hmmm…What does the future hold?

Well hang on, hold the bus! Let’s look at the wider picture, the fundamentals , the building blocks and drivers which move the property market in NZ. Forget about the knee-jerk reaction forecasts of the banks and economists, lets go to the coal face and see what’s going on:

The fundamentals that drive the property market:

  1. Housing Supply Bill – August 2022

Cato Balam (5) have outlined the changes in a non-jargonised layman style on their website. They mention this about the single house zone: “Single House Zone in Auckland. It will be a “Single House” zone no longer, as three dwellings would be permitted.”  So, if you own a property in this zone that will typically be 600 – 900 m2, the opportunities for early retirement may have just been opened up for you (5).

  1. Immigration – July 2022

Due to covid restrictions people and cargo have been restricted or slowed down respectively. This of course has had a detrimental effect on our GDP, both with the absence of workers and product.  The government has introduced new plans to ‘reconnect with the world by July 2022’ (6)

We have all seen the apartment prices drop due to low vacancy rates over the last 2 years. NZ is re-opening the borders to international students from 31 July 2022(7) and an influx here is sure to see a halt in the downturn in the price of apartments. As the demand rises, so will the yield. As the yield rises, so will the sales prices.

As of 4th July 2022, an ‘Accredited Employer Work Visa’ (8) will come into play. This essentially means it will be easier for employers to bring people in the country and has speed up the time to do it. By the end of July 2022 we could see people streaming in to snap up the vacant employment positions to get the economy moving again. Note here that these hungry employers have to pay above the minimum wage, so the incentive is always there to employ NZ’ers first.

  1. Interest rates

The current interest rates, even though they have increased recently, are still lower than they were before 2005 as is shown by the Reserve Bank below (9).

This indicates that money is still cheap to obtain and as long as you focus on yield, keep buying! If you are worried about the soaring inflation then apply the band aid in the form of a long term fixed interest rate.

  1. Affordability

It is going to tough for first home buyers for a while, however the government has extended the following incentives(10) :

  • House price caps for First Home Grants increased in many parts of the country
  • House price caps for First Home Loans removed entirely
  • Kāinga Whenua Loan cap will also be increased from $200,000 to $500,000
  • The Affordable Housing Fund to initially provide support for not-for-profit rental providers
  • Significant additional funding to meet existing and planned public and transitional housing costs

The above budget 2022 budget allowances will take effect from May/June 2022.


If we look at the property drivers shown above, apart from the interest/inflation factor which can be stemmed by fixing your interest rates, it’s all looking rather positive.

The changes in the NZ macro system are taking effect form May to August this year and the effects of those changes may lag a little and start showing results towards the end of 2022. Adding extra spice to this idea is that the world is re-opening and the restrictive covid attitudes are becoming a thing of the past. Only the history books will be able to record whether this property correction bounces back to a new boom!



  1. https://taxpolicy.ird.govt.nz/publications/2021/2021-other-interest-limitation/4-exemptions
  2. https://www.interest.co.nz/public-policy/115822/imf-says-new-zealand-house-prices-have-increased-almost-four-times-average
  3. https://www.stuff.co.nz/life-style/homed/housing-affordability/128119616/accountant-who-resisted-fomo-says-housing-market-fundamentals-went-out-window
  4. https://www.oneroof.co.nz/news/oneroof-house-price-report-june-2022-41485
  5. https://catobolam.co.nz/news/new-housing-supply-bill-single-house-zone-no-longer-three-dwellings-would-be-permitted/
  6. https://www.immigration.govt.nz/about-us/media-centre/news-notifications/nz-border-fully-reopening-july-2022
  7. https://www.internationalcollege.ac.nz/new-zealand-border-reopening/
  8. https://www.immigration.govt.nz/employ-migrants/new-employer-accreditation-and-work-visa
  9. https://news.anz.com/new-zealand/posts/2021/07/property-headwinds
  10. https://www.beehive.govt.nz/release/more-support-first-home-buyers-and-renters