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As the weather heats up, so does the rental market

By David Kneebone on 2021-10-18

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Firstly, thank you to all our clients for your patience during the upheaval caused by the recent alert level changes. We know it can be a tricky time for many, so please don’t hesitate to get in touch with our team if you have any concerns or need extra help with anything.

 

The warmer months often see the property rental market become more buoyant, and this year is no exception. While enquiry levels softened over winter, we’re now seeing demand back at normal levels with properties being tenanted at faster rates.

 

Our statistics for September demonstrate this, with all metrics (new tenancies, viewings, enquiries and applications) increasing on August. We publish these stats each month on our Facebook and Linkedin pages, so give us a follow if you would like to stay up-to-date.

 

This heightened activity means we’re also starting to see the ratio of supply and demand adjust, to where rental demand starts to outweigh the number of available properties, so it’s great when we see new clients and properties join our portfolio.

 

A hot topic over the past few weeks has been the additional detail announced about the interest deductibility changes for residential property investments.

 

The draft legislation was released at the end of September, with an exemption for new builds and developments included. This means that a property that received its code compliance certificate on or after 27 March 2020 will be eligible to deduct interest for up to 20 years from the time the property’s code compliance certificate is issued.

 

In this blog, I’ll discuss this in more detail and how the increased development around Hamilton makes it a good time to expand your portfolio and look at new builds.

 

Looking at the more positive side of the interest deductibility changes

 

The media has certainly explored the negative side of these tax deductibility changes, with many believing the changes will drive up rents and lead to landlords selling up. The social housing ‘loophole’ has also angered some, who believe it will tip the scales against working families.

 

While we know the changes do bite for some landlords, I thought we could focus on the new build exemption and what this could mean for Waikato landlords.

 

New residential developments are popping up all around Hamilton, and within three to five years the city is likely to look quite different. There are the new neighbourhoods like Greenhill Park, Peacocke and Te Awa Lakes, and more high-end developments like One Cook Street which has just hit the market.

 

In particular, I’m seeing duplexes being favoured by developers, which are turning properties with one house into two sets of two all over the city. Like many things, this is due to demand; we’re experiencing population growth here in Hamilton, and duplexes offer a ‘lock-up and leave’ lifestyle for baby boomers (and others). Plus, as new builds they fit nicely into the interest deductibility exemption so are also in demand by property investors.

 

New builds like duplexes also tick a lot of other boxes for investors, including being built to the Healthy Homes standards, and providing low maintenance for at least ten to fifteen years. In addition, the ones I’ve seen are in a sweet spot price-wise between $625,000 and $725,000. Many landlords are earmarking development properties now and buying off the plans where possible.

 

While this covers expanding your portfolio, our Lodge Real Estate Managing Director Jeremy O’Rourke spoke this month about the increasing number of property investors rotating their portfolios due to the tax changes and Healthy Homes standards. This trend is seeing investors bring older properties to the market, in order to buy new. And you can see how it makes sense due to the advantages of new properties I just listed.

 

Of course, with all this talk of new builds I’d be remiss if I didn’t mention the black cloud hanging over the construction industry: supply chain issues and building material shortages. While more organised, larger firms have been planning ahead, there’s a real problem starting to evolve around both materials supply and labour.

 

The other recent announcement affecting (or should that be ‘hoped to’ affect) the property industry and wider economy is the OCR increase by the Reserve Bank. In my view, the more experienced landlords among us will still consider anything under 5% a good deal, and there’s still a way to go until this has too much of an impact. There may be some pain for those that are highly leveraged, but I know the majority of our client base will be looking at the rate as still very cheap.

 

If you would like to talk more about your portfolio or if you would like to know the developments I have my eye on, I’m always up for a chat.

 

See you in November,

 

David Kneebone

Director, Lodge City Rentals

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