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60 Percent LVR Won’t Stop Investors

Sentiment on PropertyTalk is investors will carry on despite their initial shock at the sudden announcement that come 1st September they’ll need a 40 percent deposit to purchase an investment property nationwide. A discussion commenced online a few minutes after the RBNZ announcement with replies from property investors showing many of the signs of grief.

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Sentiment on PropertyTalk is investors will carry on despite their initial shock at the sudden announcement that come 1st September they’ll need a 40 percent deposit to purchase an investment property nationwide.

A discussion commenced online a few minutes after the RBNZ announcement with replies from property investors showing many of the signs of grief.  Shock and anger then acceptance and hope are evident in many of the replies.

Where there’s a will there’s a way and property investors are used to finding solutions to curly challenges so this is considered just another challenge they’ll overcome and the answer maybe with second tier and peer-to-peer lending which does not come under the RBNZ LVR restrictions.

The RBNZ say the latest restriction is to buffer against possible financial instability due to house price increases and the increased risk a sharp drop in property prices would have on the financial system, the functioning of the banking system and the economy.

The LVR restriction is targeted at investors due to the higher risks associated with investor funding which makes up 55 percent of banking system assets and it will take effect  from 1 September 2016 – but banks have been urged by the RBNZ Governor to abide by it immediately.

According to the RBNZ news release evidence suggests LVR restrictions improve bank balance sheets by reducing the risk associated with riskier mortgages and they also dampen housing demand.

What are the new LVR restriction rules?

  • No more than 5 percent of bank lending to residential property investors across New Zealand would be permitted with an LVR of greater than 60 percent (i.e. a deposit of less than 40 percent).
  • No more than 10 percent of lending to owner-occupiers across New Zealand would be permitted with an LVR of greater than 80 percent (i.e. a deposit of less than 20 percent).
  • Loans that are exempt from the existing LVR restrictions, including loans to construct new dwellings, would continue to be exempt.

Source

As from 1 September it will be trickier for new investors to get onto the rental property ladder and the revised LVR restriction also hurts first home buyers whom now need to cough up a twenty percent deposit.  Seasoned investors however will carry on and property traders especially PropertyTutors investors must be thinking all their Christmases have come at once now they’ll have less competition.  More on this topic soon.


This blog article was written for PropertyBlogs by Mobilize Mail.

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How to Choose and Purchase a Suitable Property to Subdivide

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With the demand for housing in Auckland at peak levels and even smaller-scale properties showing substantial profit margins when sold, subdividing a lot into two or more sections has huge earning potential. Those with the means and capabilities to purchase land for the purpose of subdividing are almost certain to see a large return-on-investment, that is of course, as long as it is done correctly.

Choosing a property to subdivide while exploring real estate options requires the assessment of a multitude of factors. Whether or not a property is capable of being subdivided will depend on its size, its location and the physical layout of the property. It’s not always as easy as choosing the biggest section out there and splitting it down the centre.

Considerations are not just restricted to feasibility either. Property investors taking this route should always keep profitability at front of mind. The effort put into the property needs to be reflected in resale value. At times, just because you can subdivide, doesn’t mean you should.

Factors to Consider When Looking to Purchase a Property with the Potential to be Subdivided

The Size of the Property

When it comes to subdividing, size definitely does matter. Generally, the larger the section the better the earning potential will be. On the other hand, it’s important to keep in mind that section size will also affect overheads. Larger sections typically incur higher costs while performing due diligence.

Land Layout

Level land is important, it will be easier to build on and will be more appealing when it’s back on the market. If a potential section is uneven or has landscape issues, it can make property development more difficult. Choosing a property that is already level will allow a smoother process.

Steps should also be taken to assess how easy it will be for multiple households to live on the lot. Consider issues like driveway creation, road and utility access, and street frontage. These factors will affect council consent and appeal once you’ve placed your subdivided property on the market.

The Zoning Rules of the Area

How the area the property is located in is zoned will restrict the type of housing you are able to create and can even cancel out any plans to subdivide. Before purchasing a property, it is crucial to research council zoning restrictions and consider how they will dictate your subdivision plans. Choosing to work with a subdivision consultant will help you navigate this process if you aren’t sure about taking it on yourself.

Subdividing is one of the most profitable actions a property owner can take. The ability to sell two lots from the purchase of one can exponentially boost your earnings from your investment. Council restrictions and market appeal will have an impact on how your subdivision journey will play out. However, with these considerations taken into account while you search, it is entirely possible to choose a property that will offer worthwhile returns.

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Another date NZ property investors are dreading

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How scary is the new ring-fencing legislation?

Well, just ask any property investor, most of whom are ma and pa investors with less than three rental properties and they’ll tell you it’s outright frightening.

They are the investors, most likely to be among the 116,000 already declaring a loss on their properties and times look set to get tougher for them where selling up may be the only way out.

Ma & Pa Investors Are Not Greedy Landlords

Ma and Pa investors are not your ‘greedy landlords’ with huge portfolios.  They’re middle aged workers (GenX, Baby Boomers) and retirees, motivated by the need to provide their own financial security in retirement.

For years the message from those in the know has been: we’re living longer and the Government pension will not be enough to live on.

Taking matters into their own hands, ma and pa investors have heeded this advice and parked some savings in one or two rental properties.  However times have been tough in recent years and the not so greedy landlords have seen any profits they had eroded.

Weekly rental increases have been modest for months.  Some may balk at this but yes, the evidence is on the Trade Me Rental Price Index and on this blog too.

Property investors have been sideswiped with increases in running costs, which they have had no choice but to absorb initially, before passing them on in the form of incremental rent increases and now there’s another law to halt that with only one increase permitted every 12 months!

See this news item on Stuff, 116,000 rental property owners declared a loss for the year ending March 2017, and it was during the lead up to, and including, this financial year, that legislation changes really started to bite and property expenses started to far exceeded income.

On blogs, property accounting and finance professionals like GRA have provided their interpretation and opinion on legislation changes and forums like our PropertyTalk give a voice to investors and their sentiment.

Upside

The ring fencing law will stress out many property investors further, and some to the point of no return.  Yes, landlords will sell, so more properties will come onto the market and many first home buyers will happily snap them up.  For those amongst us that are politically motivative,  they’ll only see the upside.

However there’s a downside too, that’s not been mentioned much.

Downside

Rentals typically house more people that first home buyer (FHB) homes.  So for every rental property subsequently bought by a FHB, two people are left without somewhere to live.

Housing has been a hot political potato for so long it’s been one step forward and two steps back irrespective of which party or parties are in power and so there’s no end in sight to this housing crisis madness.

Not Just Local

Targeting the rental property owner has been popular not just locally, it’s been a justifiable fear for landlords in the UK, America, and Australia.  Check out the links below.

So is there a country getting housing right?  Let us know your opinion in the comments below or in a blog post on PropertyTalk or of course in our discussion forums.

theguardian.com/uk-news/2018/aug/18/no-fault-evictions-hundreds-of-families-homeless-each-week
domain.com.au/news/landlords-will-withdraw-homes-from-rental-market-in-response-to-new-laws-reiv-20180806-h13ma8-756733/

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Would You Be a Landlord in 2018?

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Investing in residential property has well and truly lost it’s shine in 2018, especially in the state of Victoria and New Zealand.

In the UK, Landlords are more philosophical about changes to tenancy laws.

A recent survey suggested around half are actually positive about Land-lording even with the obvious challenges ahead namely Brexit and the political climate.

As aforementioned, can not be said down-under where landlords feel they’re wrongly in the line of sight of politicians for political gain and thus the law changes are not balanced and swing too far in tenants favour.

So the question is would you be a new Landlord in 2018?

Hindsight is a wonderful thing as the saying goes, and many property investors who have been in the property investment industry for some time still love it and already do well by the tenants which really is just commonsense.

However going in now with your eyes wide open and in the knowledge of the recent law changes, increases in everything from insurances to rates and the talk of tougher times ahead – is property investing a good move? For long term investment – why not?

Speculative property investing (though it’s hardly investing) has always been cyclical and when it’s grouped under ‘property investing’ it gives long term buy and hold Landlords a bad name.

Speculators will come and go as the property market moves through it’s cycle and their activity is considered a business and incurs Capital Gains Tax.

Long term buy and hold investors know it’s always been about the numbers and making sure they add up and there is some fat left in for the unexpected expenses.

However the constant politicising and changing of the rules to suit political agendas is disruptive and it’s hard not to think there’s a conspiracy against Landlords and it’s not just in Victoria our New Zealand, it’s more far reaching and this must be putting off would be investors which will be problematic since private landlords supply most of the rental stock.

The UK Landlords must be made of tougher stuff though as 64 percent say they’ll carry on regardless, keeping their rental properties, focusing on the potential of long term profit. The idiom “soldier on” holds firm on the land of the white cliffs of Dover.

Back down under the confidence is not so high among the local property investors. It’s one thing after another and there’s been a lot of change thrown at Landlords in recent months.

The bright line test, LVR rules, and more recently revision of the bright line test to five years and legislation around the quality of the properties.

Insulation, heating, moisture extraction, you name it New Zealand rental properties are getting a hammering from Government. But none more threatening than what might come from the Tax Working Group headed by Sir Michael Cullen.

There’s a lot on the table aimed at raising the tax grab, including Capital Gains Tax and more recently talk of a Property Value Income Tax. If you screwing up your eyes at this one, you’re not alone.

It’s creative for sure, and if implemented, it’s likely to be the tipping point for Landlords unsure if they’ll ‘soldier on’ or sell up and run for the hills.

What’s most perplexing Landlords, is why the sole focus on them and not a balanced effort to improve both the conditions of the suppliers of rental properties i.e. the landlords and it’s inhabitants, the tenants.

Surely the relationship is symbiotic and thus both are needed, now that ever before with homelessness increasing and home affordability out of reach for first home buyers everywhere you look.

Here are some great discussions on various topics affecting the viability of landlording today in New Zealand.

Capital Gains Tax?

Consultation on proposed RTA changes

Tax Working Group

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