Growth in the property market may have slowed, but it hasn’t stopped, despite our lockdowns. House prices are up 25% on the same time last year, with Auckland reaching a new record median price of $1.2 million.
Listings are limited, properties are selling rapidly, and demand remains strong.
However, experts are warning that the market will cool. From October 1, interest deductibility limitations apply to rental properties and holiday homes. Over the next four years, the ability to claim home loan interest payments as a business expense will be phased out for multiple property owners. In addition, interest rates are definitely rising. The major banks are starting to make moves even before the Reserve Bank raises the official cash rate.
These factors are helping to reduce the number of investors in the market – the cost of owning a rental has skyrocketed in recent years due to legislative changes. However, some of the higher costs will be offset by increasing rents. Although cost have gone up, the combination of rising rents and huge capital gains means that owning property has still been a winning strategy. And factors remain that keep buoying up prices, such as the rising cost of building, delays in construction and more people working from home.
It will be very interesting to see what happens once New Zealand reopens and the property market can return more or less to normal. Will we see a big summer selling season as usual? Or will rising interest rates be the handbrake that finally slows down the runaway prices? As economist Tony Alexander has pointed out, it’s probably for the best that prices do stop rising, otherwise the Government will continue to hit the market with more regulation until it cools off. Watch this space…