Indebted landlords squeezed between rising costs and falling returns on rental homes are selling, bringing a rush of cheaper homes onto the market.
With property values losing ground against inflation, landlords are facing flat rents, rising interest rates and Government attempts to dampen property investment.
Last month’s Budget axed depreciation as a tax break for landlords and stopped them using company structures to boost Working for Families payouts.
As well, mortgage interest rates are tipped to rise after the Reserve Bank lifted the official cash rate on Thursday from 2.5 per cent to 2.75 per cent.
Christchurch landlords Ian and Patricia Robertson are selling their rental property – a central Christchurch unit they bought at the suggestion of an adviser.
Ian Robertson said keeping it was “just not an option any more”.
“It’s been mostly tenanted, but it’s taking way more capital than we were told that it would,” he said.
“When they crunched the numbers for us it looked quite easy, but when it became an actual thing it wasn’t quite the same. We are just hoping to get rid of it now.”
Another investor, who did not want to be named, said she planned to sell her Linwood rental property after buying it for capital gain.
“I’m tired of the burden of the mortgage if the rent isn’t paid, which has happened twice lately,” she said. “Tenants seem to think landlords are wealthy people, and we’re not.”
Real estate group Bayleys has listed so many landlords’ properties that it has scheduled an auction to sell 20 at once. Most on the bill for the June 30 auction are in the $200,000 to $300,000 price bracket and include flats, houses and city apartments.
Bayleys Canterbury residential manager Phil Hayes said the influx of investors selling came immediately after the Budget.
He said some landlords counting on depreciation rebates now found their holdings less attractive.
Some of the auction properties were heavily mortgaged and their owners were “not in a position to ride out debt commitments”.
However, the many landlords not claiming depreciation had seen no change in their investment’s value.
“Those who based their business models on yield rather than capital gain are more than happy to continue collecting rent and waiting out the current market malaise,” Hayes said.
Gavin Topp, owner of Harveys St Albans, said: “A lot of landlords who’ve been in the industry under seven years are getting out. All of a sudden it’s not as good as it was. They haven’t learnt that you have to hang on for maybe 10 years and ride the storm.”
Topp said owners of old and cold properties were struggling as tenants wanted warm homes.
He has been advising landlords selling under-performing investments to replace them with modern townhouses giving a better return.
Landlord Ron Inglis said heavily mortgaged investors getting out of the business meant opportunities for others.
“All the pretenders are out of the way now,” he said.
“Some of them were stretching themselves, negatively gearing and using unrealistic tax breaks because of the tax regime.”
Quotable Value said this week average house prices have been falling in Christchurch, and buyers have the upper hand. Nationally, values are now 4.1 per cent below their market peak.
QV research director Jonno Ingerson said the rise in listings of cheaper properties and lower demand was pushing prices down, and the tax changes could dampen them further.
Source: www.stuff.co.nz