Is It a Good Time to Buy an Investment Property?

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From April 1 this year investors will once again be able to deduct mortgage interest from rental income. This change, coupled with the bright-line test for residential property moving back to two years, may encourage investors back into the market. But what is the timeline for these changes and is it really a good time to invest in a rental property?

What Do the Tax Rule Changes Mean for Property Investors?

From April 1, 2024, investors will once again have the ability to deduct 80% of interest expenses from rental income, increasing to 100% in 2025. This is certainly an incentive for investors to return to the market and is one area where a clear timeline has been set.

Is the Bright-Line Test Changing?

It has been announced that the bright-line test for residential property will move back to two years from 1 July 2024. This intended change means properties sold after 1 July 2024 will only be subject to the rule if owned for less than two years, removing a financial barrier for investors. Currently, the sale of a residential property which has been owned for less than 10 years may incur income tax on any gain on the sale. 

Is there a Demand for Rental Properties?

Strong population growth in 2023 and investors moving out of the market have meant there is currently a demand for most, if not all, types of rental properties. Finding good tenants has become easier in recent times, so long as properties are of a decent standard.

How are Interest Rates Being Impacted?

Another consideration for investors is what will happen with the official cash rate and its impact on mortgage rates. Despite some predictions that the Reserve Bank would hike the rate in late February 2024, the OCR has been held at 5.5 percent. Some experts predict that if the hikes are done the path for lower interest rates may follow, further incentivising investors to return to the market.

What is Current Investor Sentiment?

Crockers Property teamed up with leading economist Tony Alexander in 2021 to assess how the intentions and sentiment of the investment property sector are changing over time. These regular Property Insight surveys have begun to provide some valuable insights.

In a recent article in One Roof Tony noted that the survey he runs with Crockers has shown "a net 22% of landlords are finding it easy to get good tenants. A year ago only a net 3% said this. This is one impact from the 2.9% NZ population surge this past year. More people are looking for somewhere to live and landlords can pick and choose in some locations."

Tony also noted that while property investors may be beginning to follow young homeowners back into the property market, the reintroduction of the change in the bright-line test may have another immediate impact with investors who had previously been reluctant to sell (to avoid paying an effective capital gains tax) once again looking to sell.

Read Tony’s latest survey results

If you’re looking to buy an investment property and would like some further advice from our Property Management team, contact the team at pm@crockers.co.nz or call for a chat on 09 623 5952.