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The new tax rules on residential investment properties mean the days of investors mortgaging up to the eyeballs are probably over

The new tax rules on residential investment properties mean the days of investors mortgaging up to the eyeballs are probably over
The Sugartree Prima apartment building in Auckland.

The amount of debt they are carrying is likely to be the key determinant in whether landlords retain or sell their residential investment properties under the new tax rules announced by the Government last week, which will make mortgage interest a non-deductible expense.

There has been plenty of huffing and puffing about the changes since they were announced but to see how they could affect investors in the real world, looked at their potential impact on a fairly typical rental property in Auckland.

It was a one bedroom apartment in the Sugartree Prima building, high on the Union St ridge on the fringe of the CBD.

This was a fairly new development about three years old and the apartment had a floor area of 50 square metres and came with a car park, so could appeal to both investors and owner-occupiers, particularly first home buyers.

It was rented for $520 a week, which gave a potential gross rental income of $27,040 a year and when it was auctioned by Ray White City Apartments on March 18, a week before the tax changes were announced, it sold under the hammer for $491,000.

For illustrative purposes, let's assume an investor was able to purchase it with a 20% deposit ($98,200), which would have been possible up until the end of February when Loan to Valuation Ratio restrictions were re-introduced by the Reserve Bank.

That would require a mortgage of $392,800 and the payments on that would have been about $18,694 a year (at 2.53% with a 30 year term).

On top of that the landlord would have to pay $1600 a year in rates and $4194 in body corporate fees, taking the major outgoings to $24,488 a year.

That would leave free cash flow of just $2552 a year, out of which would have to come any incidental expenses.

If the property became vacant for a period of time that would reduce the free cash flow as well.

So under that scenario, the property probably wouldn't be generating much, if anything, in the way of cash, and that's before taking tax into account.

Rental income is taxable, but the investors would be able to reduce their taxable income by offsetting against it the body corporate levy, rates, other incidental expenses and, under the current rules which will eventually become redundant, the interest portion of their mortgage payments. estimates that would reduce taxable rental income to around $11,300 a year, which at the 33% tax rate would give a tax bill of $3729.

That would definitely put the investor underwater as far as cash flow goes, and they'd need to be dipping into their savings or income from other sources to pay the bills the property generated.

In the olden days before vaping and smashed avocados had been invented, residential property investment was supposed to provide a safe, secure and reliable income stream, but the example above indicates how far things have moved away from that model and been replaced with speculation based on capital gain.

The only reason a so-called investor would be prepared to take on an investment that not only provided no income, but that they also had to keep topping up with money from other sources, would be because they expected to make a handsome capital gain when they sold it.

When median and lower quartile house prices have been increasing by tens of thousands of dollars a month as they been recently, topping up your rental property's outgoings by a couple of thousand dollars a year might seem like a pretty good deal.

But what happens when the tax rules change and mortgage interest costs can  no longer be offset against rental income?

In the example above, that would increase the investor's tax bill up to about $7000 a year (at 33%) or $8285 (at 39%), which would mean the investor would be out of pocket by around $4500 a year and maybe more.

Having to stump up that much cash could start to put a bit of a strain on some investors' finances and if the rampant capital gains of late start to wane, it might well cause some investors to cash up and exit the market.

However, there is another factor to consider.

From May 1, investors will need a 40% deposit to buy a residential investment property.

In the example above, that would reduce the size of the mortgage to $294,600, which would in turn reduce the mortgage payments to around $14,000 a year.

That in turn would increase the free cash flow (before incidental costs and vacancy) to about $7200 a year.

By co-incidence, that is within a couple of hundred dollars of the annual tax bill for an investor on the 33% tax rate.

So from the investor's cash flow perspective, stumping up a 40% deposit instead of 20%, turns it from an investment that requires a cash top up of say $5000 or so a year, to one that more or less breaks even.

That means they'd be under less financial strain, but still wouldn't be getting much of an income from their investment, if they get anything.

But if they are likely to get a significant capital gain when they sell, that option would be very tempting, even if the sale was caught by the extension of the bright-line test.

It's possible the new tax rules could exclude an exemption for new builds once the details are finalised and if that's the case,we could see some investors selling their existing residential properties and putting their money into new developments, which could be good for housing supply.

But either way, the days of mortgaging up to the eyeballs to buy residential investment properties are probably over.

Those investors who do stay in the game are likely to have plenty of equity to play with, and mortgages of 50% or less of a property's value are likely to become the new norm, especially as interest rates rise.

Where does all of this leave first home buyers?

After all, the Government's stated objective in introducing the tax changes was to "level the playing field for first home buyers."

In the example of the apartment sale that was used above, the tenant was paying $520 a week in rent, or $27,040 a year.

If they purchased the unit for at its sale price of $491,000 with a 20% deposit ($98,200), the payments on the mortgage and the rates and body corporate fees would come to $24,488 a year, or $471 a week.

That's nearly $50 a week less than their current rent.

So if you were in that situation, why wouldn't you buy it?

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To answer your question re why would I not buy it?
Because people are trying to get out of apartments in central Auckland + mortgage rate is currently as low as it will get given mood of bond market.
take a look at what Central Auckland sales have been doing relative to NSC and Rodney sales last 8 months.


You need to separate out the shoebox segment of the apartment market from more recent builds like this which have a broader appeal. The different segments of the market have different drivers are behaving in different ways. And there is no point point comparing them to places like Rodney or the North Shore. They are completely different markets.

Fair points. Thanks Greg.
In general I am noticing that Central Auckland is doing poorly re sales due to absence of essential overseas student market.
NSC is driving 8% of national sales and is an essential bellwether area.
Rodney is getting lots of folk trying to get out of NSC and buy larger plots


I live in a high quality building, mostly large 2 bedrooms, central location, very well maintained. A number of apartments are up for rent (they are having to drop rents to attract any interest, in fact), and those going up for sale are not being sold. I can afford to buy, but if I bought I would probably not be able to sell again, or would lose a lot of money. The apartment market always bounces around, and it seems to be on the slide at the moment.

The "Shoebox Segment". That's been done by legislation and the foreign student sector been run/shutdown to re-organise the education sector and the immigration visa policies. Move from the student for work/residency to, importing a workforce to build the State infrastructure that's been planned and due to be rolled out. Al lah precursor to the 'Big Spend' the vanity Tram project from the CBD to Mangere. Election 2023, "Nationwide Housing & Infrastructure Construction" programme! A mini 'Marshall Plan!'


Why wouldn't you buy it? 1) Numerous apartments with construction issues including weather tightness, 2) plethora of scabby digs that are now vacant with the loss of offshore 'students', 3) body corporate-jesus they can be a nightmare, and finally 4) your neighbours-Auckland City at night is a dirty, loud aggressive hole. Wouldn't have a bar of it.


And if we fast forward ahead about 18 months and give them an (estimated) interest rate of 4% (representing a small rise that could easily be much much bigger) the mortgage payments rise from around 18K PA to almost 30K PA. I think the worm may finally have turned, and about time too.

The drain on consumer spending in the midst of a crisis would destroy the employment market. It's unlikely you will see 4% any time soon. And its not a small rise, interest rate changes are about % change, so that would be a 60% increase.


That interest doesn't disappear. It goes to despositors instead. They can do the consumer spending instead of the borrowers.

Except depositors won't spend the money. They're already saving money instead of spending it even with low interest rates.

Except depositors won't spend the money. They're already saving money instead of spending it even with low interest rates.

According to the ASB, they're all living paycheck to paycheck with 50% of accounts holding <$1000 and 83%<$10,000. They vast majority need to be holding on to some cash.

I disagree. As a depositor (soon to be a former depositor), I used my interest income for non-essentials and 'nice to haves'. These days, I've cut my spending and preparing to cut back further.

Unfortunately there aren't many of them left...

What you will notice is when you cut rates you stimulate the economy and when you raise rates you depress the economy.

That's because they've linked money supply to borrowing. Completely unnecessary. It's just a ruse to keep society in debt. Money supply is simply the amount of money in circulation. We can do that through government spending instead of debt.

That not the case, the reason money is linked to debt is to ensure that profitable projects can find a source of funding. The elasticity of supply is the core reason we allow a loan to preceded the deposit.

Most does disappear. Remember loans are not made with depositors money, they are created out of thin air at a key stroke. The profits made on the interest charged on this fairy dust money is distributed to shareholders. So largely drained to overseas entities, not to be spent in our economy.

Laminar..they moved down pretty quickly and can move up just as fast (or faster). It looks likely to me that the RBNZ will be forced to raise rates, probably way more than once, next year or the year after. I do not think they will want to but the what the OCR is is bigger than the RBNZ. And yes, it will destroy employment, along with a number of other things.

If it destroys employment then they won't do it.

refa...I think they are coming to terms with the fact that there will have to be some collateral damage if we are to destroy this housing monster that we have allowed to get so big and destructive. And the extra couple of % of unemployed will be part of that.

They can move down quickly but they can't move up much at all. The RBNZ remit is to maintain inflation between 1% and 3% seek full employment, so no, they can not simply rush rates up the ladder. Adrian couldn't do it even if he wanted, he's constrained by the policy. Nor would he though, as he's not stupid. Who would suffer the most in a major downturn; the poor, as always.

I think they regard employment as a higher priority, that's why such drastic measures were taken last year. RBNZ even stated as much.

Absolutely. It is about time. I could nor agree more. Actually, it is overdue.


A point missed above is that, whilst a less leveraged investor might still be cash positive, the actual return on equity is lower (since they cannot leverage to the same extent), so relative attractiveness as an investment reduces considerably anyway.

Well put, but it's less attractive even if they don't leverage more because they are simply bringing in less cash.

Yep, well spotted ACB, WITH A 40% deposit the investor can only buy half as many properties as with a 20% deposit

ACR... not sure this was missed. I presumed it was tone of the main reasons for the new rules.


To be honest this run through reveals how masterful the changes are.

There will be less leverage against residential housing long term in the system, making for more stable capital markets and a balanced economy.


Brutus..yes, this Govt went up considerably in my estimation last week.


Yes, the Government has done something, and in the right direction. But in my opinion the steps are still too small and too timid, as much more needs to be done.
And Robertson should also whip Orr's ass, make the RBNZ's remit change more explicit and less discretionary, and force him to tighten monetary conditions, especially for specuvestors.

Consultation on interest-only and some sort of debt-to-income ratio for lending to investors is ongoing.

I'm expecting they'll do something around interest-only lending, but wait and see how the current changes pan out before doing anything about debt-to-income. Since the current changes and LVR are going to be encouraging deposits of at least 40%, and more often 60-70% for investors, the debt-to-income is kind of irrelevant with that level of deposit.


You have to hand it to them, they have devised a policy change that directly effects the root cause of the housing problem (leveraged up specvestors). Without causing damage to the wider economy. Further the PM hasn't broken her word on the Capital gains tax. Good politics & good economics. They finally got something right.

"leveraged up specvestors" are NOT the root cause - they are a symptom stemming from the excessively low interest rates - which is what needs to be addressed.

Word it however you want paashaas.

Noise control just turned up at the party, and you know how it goes from there I assume...

following your noise control analogy what comes next is the officers moving on after 10mins and the loud party resuming .. followed by dumping of shit in the garden of the neighbor the party goers suspect of having dobed them in .. followed by the very same next Friday night, ad infinitum .

They are trying to have it both ways - ultra low interest rates to keep unemployment down and govt debt servicing cheap - but no "undesirable" side effects like asset bubbles. Not going to work - and will only lead to further distorting measures ( rent controls next I think .. ) before it ultimately fails.

Agreed - the RBNZ caused the problem by allowing speculators cheap $ to spend on housing.

"Further the PM hasn't broken her word on the Capital gains tax". I am not sure why you would think that way. I have no problem with any experiment they start with regard to housing. They just need to be honest, i.e we will tax any capital gain on properties you sell inside of ten years. We will treat most of your cash flow as a taxable amount. They should do that with Google and Microsoft!


The change is retarded and dangerous. It taxes both a profit and a loss, pulling money out of an economy fighting to stay afloat. The correct policy is a pay as you go capital gains tax, but everyone knows that, Jacinda just doesn't have the guts to do what's right. Thats why NZ is the only nation in the OECD without a capital gains tax and the only nation in the OECD that doesn't allows a business to deduct its interest costs. Its why the OECD and IMF both say NZ should use a capital gains tax and why both the Treasury and IRD said don't ban deduction of interest. (caveat, Treasury said no because of insufficient time to understand the impacts of the policy).
The solution is simple, build more houses, tax capital and pump money into poverty traps.

You're absolutely right Laminar.

I made this comment in another thread but it's like a King demanding extra and unreasonable taxes from his Lords to fund some sort of vanity project like a Crusade. How are the Lords going to raise the cash? From the peasants of course! Peasants will probably revolt. It's a mess.

Banning interest only loans, a CGT or even stamp duty on the sale of a property would have been less harsh on those least able to fight back.

But you lot vermintly denied you would ever accept this " CGT or even stamp duty"? Its it just me or do all speculators and rent lords suffer from selective memory syndrome?

"But you lot vermintly denied" ???

Vehement vermin?

Yes vermin ..parasites..

A CGT was their first preference and that of many other Kiwis. But investors disqualified it.

If investors are now willing to take a more conciliatory stance and go to the government offering to accept CGT on all investment properties (including retrospective, perhaps, to demonstrate their sincere and selfless interest in what's for the betterment of New Zealand) and the removal of interest-only loans I'm sure the government would be amenable to replacing the new changes with the latter.

People getting free money from their lands aren't generally the peasants of a society.

Investors shouldn't get to call the shots any more so than anyone else. And obviously owning a rental isn't free, stop being silly.

Yeah Rick

Agree they should not get to call the shots. Shooting down the CGT was silly. You're right there.

Free money is free money. Investors don't pay for their rental subsidies welfare or monetary policy support they receive.

Double post. Obligatory joke instead:

My landlord called me the other day to say he wants to come over to discuss our outsized heating bill. "Sure, no problem," I said, "my door is always open!"

Property investors are as much greedy as any business owner and want to see there money grow, there is nothing bad in it.
But a business pay tax but property investor want to evade it by considering interest as cost. After having this law, lot of investors are happy to have CGT (which they oppose whole life) to be accepted but not tax interest deduction law.

What a shame..


House price inflation is pulling money out of the economy for 30 years as people commit more and more of their future income.

Your 'simple' solutions would take years to come online. How much higher would house prices be then at current rates? 25% 50%?

A capital gains tax will reduce the expected return and thus reduce investor demand, so it would blunt prices immediately. Put a stop to the government buying houses would also reduce demand and blunt prices. So it would have an immediate effect. If its a pay as you go tax it would hit investors, but only when investors are making profits. Simply set the capital gain tax rate at a level that Treasury, Government, IRD and the RNBZ calculate is appropriate to achieve an overall positive outcome.

Yes but politics is politics Laminar. Plenty of Swing Labour voters will swing back to National if they know this. I feel a capital gains tax will be on the cards down the road (5-10 years) but 1 step at a time.

CGT got ruled out under Ardern, and the time it would take to build political consensus about it would tip us into another election cycle. So another three years minimum before it was even talked about and then more after that to implement.


Or she could admit she was completely wrong, failed in her duty to NZ, make a genuine apology, pull up her pants and do her f#$**^! job. Shed get my vote.

What is the requirement to pay tax on any increase in value during the first 10 years you own a property under the Brightline test if this is not a CGT???!?

It's a crap CGT.

This is the action of a desperate government responding to a big drop in Jacinda's popularity. Grant Robertson is an economical layperson who doesn't understand money and questioned the link between interest rates and asset prices. He was explicitly warned by the RBNZ this could happen and did nothing. Now the house is on fire and the people have noticed he and Jacinda are panicking.

This from a respected economist:
"And don’t go blaming interest rates for the house prices, as the Minister tries to do (waving his hands and suggesting here are lots of things outside his control). Did you know that, even now, real interest rates in most of the advanced world are even lower than those here" [and the house prices aren't bananas]

We are both correct. The fundamental driver of house prices is supply and demand. For example, if you have an oversupply interest rates impact on property will be muted. If however, you live in NZ, like say Grant Roberston does, well then... To put it politely, interest rates matter a lot.

I liked ACT's proposals last election. Assumption is you can do what you like with your land provided your immediate neighbours don't object and you're not breaking environmental bottom lines. Entrepreneurs will create new homes because they're not artificially constrained. Michael Reddell likes to compare NZ with US cities because the US has a lot of land per capita like NZ, their interest rates are pretty constant and they have a mix of restrictive land policies and free policies, which provide comparisons

But they are effectivly artificially constrained because immigration ran so hot for so long. Dont drink the Libertarian cool-aid.

Insulting smear deleted. Ed.



And just where does that leave n
National and ACT? presumably they are even more gutless.. The idea that most investors in rental property are running real businesses is simply untenable, so why should they be able to deduct interest on mortgages?
I have absolutely no sympathy for most landlords and I have been one in NZ for 21 years. Furthermore, as I am also(and primarily) a stockmarket investor, I have unequivocal proof that a well run dividend focused portfolio of NZ/Aus shares has outperformed the rental market for many years. I have all my tax returns for the past 15 years.

I basically agree but there are a few important points. Bill English wanted a CGT. Property investors who do not run their business for a cash flow based profit do not qualify as a business under current NZ tax law, and should not be able to deduct any expenses at all. IRD is a tiger without teeth. Fix it. You're wrong about stocks beating property because you have not used an IRR calculation. Overall though yes, I agree with your basic principals.

And what if there’s a non linear response function? What if landlords and FHB’s alike come to anticipate a drop in prices and adjust their behavior accordingly. Tickling the tail of a Minsky moment. How smart will the government be then?

First home buyers are not primarily driven by expected future prices in the short term. They are driven by a desire to own homes and a very basic understanding that property likely rises over long periods of time.

I disagree. Nobody in their right mind would lever up to buy a depreciating asset.

What are you talking about?

Your logic with regard to Owner occupiers. I’d accept that they're not flighty like investors, and will probably hang on during a housing downturn. However, I doubt they’d be motivated to buy if they perceived falling house prices.

Investors are not flighty, and yes I'm correct about first home buyers:

At that point RB and govt needs to allow a consolidation and not step in again slashing LVR and causing even more pain

The numbers in this article make sense if you are putting a cash deposit down. How many investors are using equity as the deposit when expanding their portfolios?

The psychological factor of having to put real money in from income or property sales to maintain these speculative positions will be a shock to a lot of them.
The investor (speculator) can cash out their equity at anytime, I don't think it makes a difference to the calculations if the goal is wealth accumulation.

If the full 491k was borrowed and they had an interest only mortgage of 2.29% I think they would still be making money even under the new rules. Not much money but still positive at around $70 a week. You would have to manage it yourself and do your own accounting though.

this was my thoughts as well- when the author refers to the 40% LVR and the associated mortgage they make it sound like the 40% is in cash when in fact the opposite is true - the property is been bought with a 100% mortgage and the equity deposit is sitting in a second property.

One bedroom apartments? They make up about 10% of the Auckland market. How about using a 3-5 bedroom house as your example? Very easy for investors to simply up the rent when it can be spread across more people. What's $100 a week across six people? A McDonald's combo each?

Agreed. I don't think apartments have inflated to nearly the same extent as standalone properties, and the rent dynamics are different.
I mean, this is a good piece of work, but applying to eg. a 3-bed house in South Auckland would be more relevant overall.

Ironically, this would then make the one bedroom apartment a popular alternative (to sharing a 3br house) for the renter. (I'm assuming your example of $100 a week across six people is 6 adults).

Demand for the over-supplied (due to no foreign students) 1br apartment would rise and demand for sharing a 3 or 4 br house will decrease.


Greg, I don't understand why principal repayment of the mortgage is included as a cost. I understand it affects 'cash flow' but the hypothetical investor ends up making $2552 - $3729 tax = -$1177 however he has paid $8759 principal so the actual profit is $7,582 ($633 mth). Seems not too bad and even under the new rules would be in profit at around $400 a month.

Along with inevitable capital gains as the cheap money and slow building supply continues, it's hardly going to cause a fire sale.

Well spotted Zach, it's a major mistake in Greg's calculation, which makes the whole cashflow point invalid and no one here except for you realise it! See my earlier comment below at 1:28 pm.

You cannot count principal repayments as profit because although they contrbute to the investor's equity, you don't know how much equity you will receive until the property is eventually sold. If prices go down the invetsor could end up with negative equity and in the meantime they are faced with paying out cash to cover their actual outgoings. The only certainty is that an investor making principal repayments will have more equity than one who doesn't. If the investor's cash outgoings are strating to hurt their pocket they will likely sell, even if their equity is continuing to rise. If their equity isn't rising signifcantly, they are even more likely to sell. 

I'm not counting principal repayments as profits but rather not considering them to be costs. I just think the principal payment shouldn't be in the equation. Maybe it's just a landlord thing but it wouldn't normally be considered in our calculations.

Greg, see my comments at 1:28pm & 1:33pm below, thanks

Agree Greg

They dont buy it because they dont have deposits and hilariously would ultimately want to later turn it in to a rental.

Great illustration Greg. It assumes the sale vaule of the property remains static. (You can't do anything else as who knows).
The whole thing seems very unstable to me.
If the property values start a long slide down, then why would anyone stay there at all.

The days are probably over, except for modern politics and the elections coming our way in 2023

Scenario A) Prices have stabilised, sunk a little maybe in balance with a post-covid tourism-led recovery, so Labour looks good finally and get a third term

Scenario B) Prices have gone crazy again (maybe because landlords are stubborn, and there is no popular investment alternative) and Labour get squeezed out by a National led government promising to reverse the investment rule changes before they even kick in fully.

So if you were in that situation, why wouldn't you buy it?
Because it's current value (until last week) was underpinned by the favorable tax treatment given to the investor/owner and other potential investor/owners. The rules have changed and now so will values. The presence of potential investors in the market supports prices for all property owners. If the apartment value goes down just $2600 in a year then your $50 a week saving is wiped out and you are still on the hook with the Bank,council and body corp. Why buy the cow when the milk is only $520 a week.

So you didn't buy when prices were rising and now you won't buy because prices might fall. I'm not singling you out, but the logic here is why many will never own their own place - they are either risk or commitment averse, or both. Houses will never fall in price to the point you think it is worth the risk.

I think these announcements have the potential to soften the market. It is equally likely however that rents are going to rise for stand alone housing - that is inevitable. The only question is will the rise be enough to continue to make it a worthwhile investment.

"So you didn't buy when prices were rising and now you won't buy because prices might fall… the logic here is why many will never own their own place - they are either risk or commitment averse, or both"

Absolutely 100% so many people talk, talk ,talk but never act

"So you didn't buy when prices were rising and now you won't buy because prices might fall… the logic here is why many will never own their own place - they are either risk or commitment averse, or both"

Price go up because we have people like that, imagine if everyone was the same, the market would be so boring, it actually applies to all aspects of life.

It's not a matter of rises or falls. The price is just too high.
200K might be a reasonable price. Which is what it would be if we hadnot allowed the population explosion of recent years.

No problem with the recent changes - it will drive out speculators simply seeking capital gains.
I hope that for those mum and dad residential property investors looking for a viable long term option for retirement purposes remain viable but being highly leveraged is not going to be possible. Owning a rental is still going to be possible and I don't want to see rental property become dominated simply by very large investors and property owning companies. I have seen figures on this site that 80% of investors own one property, and about 70% of investment properties are owned by small investors - I don't want to see those numbers fall.
And for those who say "nah" . . . . well it seems large investors and companies couldn't give a shite about tenants. One only needs to have read recent landlord comments on this site - e.g. "I have kept my rent down to 2016 levels to keep my tenants" vs "the property manager has been pushing for me to put the rent up". To the large investors and companies, it is simply about dollar numbers and the tenant is simply a faceless nobody.

As a renter, I'd MUCH rather have a large business own my property than a "mum and dad investor". Mum and dad investors can get overly emotionally attached to their properties to the point of actively harassing renters. Tearful phone calls from owners about perceived deficiencies in dusting is not that enjoyable and certainly not professional, and I can't imagine a large corporate doing it.

Most just go though property management companies in my experience. Renters & landlords generally don't want to know each other.

Many seem to hate property management companies starting with Quin...

Agreed, matches my experience.
Professionals are much better to deal with than those who own one property, who basically think of it as 'their house' that you just happen to be squatting in. 'Mum and Dad' can be wildly unreasonable... Brings to mind the landlords I had in Wellington who insisted on communicating by fax (!) because they were too stupid to use a computer, and who thought it was totally reasonable to rock up, unannounced, at 6am to do some trimming (with power tools, naturally...)


Landlords all across social media really do love to comment on how they have always offered below market rent and how sad and reluctant they are to be forced to raise it by all these horrid anti-landlord changes! None of them ever admit to being greedy selfish scoundrels. Yet more often than not, tenants report mum & dad investors to be the worst they have dealt with. Bigger rent increases and far less knowledge and/or respect for their responsibilities and the rights of their tenants. This has certainly been my experience and the worst were supposedly Christian, yet had no problem lying and completely neglecting their responsibilities, while continually jacking up the rent at every opportunity. Good riddance.

You guys also complain about property managers...

And your point is? That's hardly surprising when property managers aren't much better. Mum & Dad investors just happen to be worse.

I'd take a competent property manager over self-managed any day, even if it's a few bucks extra a week.
Exception: absolute ****ing bastards like Quinovic, who are notorious. Every renter I know who has rented through them has had to take them to the Tribunal, and won because Quinovic were trying to rip them off. I'm not exaggerating.

By you guys, I assume you mean tenants as a group ? I have seen this language really accelerate over the last few months. Interesting times...

Property articles tend to have two factions. By "you guys" I mean the anti landlord faction.

by frazz | 31st Mar 21, 2:55pm 3 up
But you lot...

Sadly, common values of some posters seems to be based on a combination of being self-centred and envy. Expect sympathy for their plight, happy for "mum and dad" to help them out, but not happy for "mum and dad" to try and get ahead.
However there are many young people out there not so bitter and twisted.


Why should anyone feel sorry for investors, at any point? Isn't the whole game about calculated risk? I have investments, and if they lose money that's on me and my misguided decisions. This sudden rush of expectation to care if investors lose a bit of money on their second or third properties is just bizarre. Every day I see people begging on the street - "mum and dad"'s bad investment decisions really don't keep me awake at night. So no, it's not self-centredness or envy, just sympathy for those who deserve it, and none for those who don't.

For some people it is their first rental property. Realizing that superannuation is not enough or may not even be there at all for retirement they have worked hard and bought their first investment property. They still have to work hard as the income is absolutely minimal and they have to pay most of the principal repayments with their salary. Suddenly, just a few months into it, the government steps in and confiscates all their measly profit and more. They are lumped in with property tycoons who own scores of properties too.

Yeah, I feel a bit sorry for them and I don't think doing so is bizarre at all.

Sure, that is a bad situation and I do feel sorry for them. But these people are in the minority. Most investors aren't in this position. And there is an argument to be made that buying a first investment property in the midst of a housing boom is very unwise. It is a huge gamble.

Ring fencing and the changes in the UK were warnings as well. A minority will have to be the ones who take the brunt of things whenever there is a change. The last ones to buy usually. I wouldn't be too sure if in fact these recent purchasers will lose much in any case.

We have a universal superannuation payment Zachary, so I would go further than Hannah and say I still have little sympathy for people above that level (which is the level the vast majority of older nzers live at) particularly those that fully own their own home and have the ability to do a reverse mortgage. Any investments past that point are a total luxury, and I am just so sick of hearing these incredibly fortunate people whining.

I have a house. On your reasoning: why should anyone feel sorry for those who don't; that's what the whole game is about, getting a house, and some do and and some don't.
However, I don't feel that way. I do care about homeownership and affordability issues for the young. It has been a long held cultural norm.
I also care about about people being able to own an investment property as part of their retirement income. Likewise, it has been a long held cultural norm.

Well, basically 1 - 2 generations expecting 3rd and subsequent generations to sacrifice a greater proportion of their earnings (something Generations 1 and 2 didn't have foisted on to them) to fund their retirement lifestyle. It's perverse. Just as perverse as taking away retirement income from those who worked hard all their lives and saved, only to get to the end with 1/10th of the retirement income they budgeted for.

Having a house to LIVE in and one as an investment are completely different things. I would never begrudge anyone a family home. You are claiming that the family home is an investment, which I don't see it as, and I'm not sure many do. As for investment properties being a "cultural norm", that is a very recent thing. It's only the past few decades that has seen it become "normal" - even then, it is only normal for a minority.

Potentially libelous comment deleted. Ed.

Hah! That does not surprise me sadly. Capitalize Life, as though it's sacred to you - yet rabidly endorse and participate in people farming. It's always amusing when 'Christian's' completely ignore Christ. Plenty of them in the rentseeking business.

Edit for clarity: Karl's comment referred to the capitalisation of a word by another person - my response was in reference to this and not Karl himself.

Ah, one of the prosperity gospel heretics then

Potentially libelous comment deleted. Ed.

Very evidence based comment thank you.

Currently renting due to a separation and have my christian landlady living next door. A real busybody and always breaking the tenancy agreement by just turning up outside - still, it is a bargain and very convenient. also partially deaf so doesn't mind loud music. swings and roundabouts. told her to bugger off and asked for 24 hours notice once. not sure she heard me.

Religious types only answer to God - that's why I don't trust any off them

Our inept government has no understanding as the real cost of offering residential properties up for rent.
I thought the article explained by the motel owner earning $444 per night per room paid by our taxes. The massive downside is crime, drugs, vandalism that we as property owners must put up with is on the increase with a society that is increasingly not responsible under this nanny state.
Interest cost must be a legitimate cost.


So sell the damn thing. Someone will buy it to live in. That's the idea.


Crime, drugs and vandalism are arguably more likely to be on the rise because we've been transferring the wealth and hopes of younger generations to the portfolios of older asset holders.

You have to give people a viable chance to build a life. Transferring away their wealth to those who already have more will have awful social effects.

It's time the Nanny State stopped nannying investment property and began rewarding productive enterprise instead.

When there was a free hand these guys never turn up and say anything.

Now when Govt. bring one law see what they are saying "Interest cost must be a legitimate cost" I mean seriously.

The experience from Taiwan (I think) was if you provide tax incentives on new properties (in that case it was rent controls for existing housing), you will see existing houses being pulled down and replaced by new builds. The overall supply might increase, but you'd have an even bigger housing crisis.
In Taiwan (?) perfectly good apartment buildings were demolished and replaced with new, uncontrolled rent buildings. It was a disaster.

This is what has been happening in many parts and will now be on a bigger scale.

This may help in supply but creating pigeon hole and that too are not cheap.

Greg, thank you for your detailed calculations, you do however omit a crucial point when you calculate your cashflow, namely the fact that you have used a P & I mortgage. Indeed I agree that an investor will not get much positive cashflow, if any at all but crucially, even if the property did not increase in value at all over the term of the loan, the owner will have a mortgage free apartment at he end of it, in financial terms he/she will be $392'800 better off

Another way to look at it is that the principal repayment is not a cashflow expense, it's an asset that is growing over time to the full amount of the value of the mortgage. To truly compare cashflow in your example, you have to consider the interest cost only + body corp, rates etc… Then the apartment is still cashflow positive!

Yes, looking forward to Greg's explanation.

Ha, I simultaneously (1:50pm) replied to your own comments above, lol

Great minds!

"The new tax rules on residential investment properties mean the days of investors mortgaging up to the eyeballs are probably over"

This is good, as over leverage is bad AND now removing Interest Only Loan (except in emergency period for a short period) should be as soon as, though should have been stopped earlier but still better late than never.

"That would require a mortgage of $392,800 and the payments on that would have been about $18,694 a year (at 2.53% with a 30 year term)."

This is based on interest and principal BUT what happens if it is based on interest only which is used by many speculators to get edge over FHB and genuine Investors : It is $9938 per annum or just $191 per week.

Greg Ninnes, good article but why is this aspect not touched of 'interest only loan' as any efforts or measures by rbnz or government will not deliver the result, if they are serious and actually wants to target speculators.

I do repeat and is only to highlight why the monster of interest only loan not covered and acted but your article should have covered the option of IO loan also, which is used by most speculators as their aim is quick and fast and now BIG capital gain.

So basically based on data above - speculators are able to pay twice as much, compare to FHB who will be on principal and interest only and in auction will have an upper hand on that day to outbid FHB as speculators are looking for short term with eye on CGT.

"If they (owner occupier) purchased the unit for its sale price of $491,000 with a 20% deposit ($98,200), the payments on the mortgage and the rates and body corporate fees would come to $24,488 a year, or $471 a week." (vs $520 rent)
And they get a mortgage free apartment at the end of the term of the mortgage!
Or the correct way to look at it, is to NOT include the principal repayments in the example, in which case they are much, much better off than renting!
Sadly, some who have commented that they would not buy, don't understand this

Agree FHB and long term investor will look to free the property but not flippers / Speculators who through interest only loan multiply their high risk purchasing power. To remove this speculative side demand, important to act and though is not a silver bullet, it is closet to being a silver bullet and may that is one reason that Jacinda Arden and Mr Orr are getting cold feet.

Free market....
Gov and RBNZ stoked market last year
Now gov trying to dampen it down.
External actions hence had more impact than "supply and demand" which means how many available for those wanting them at an affordable price.
I know which I thinks more influential

Unfortunately all these rules have done is force the big investors to start buying up all the cheaper property and pretty soon, there won't be a single property anywhere in the country under 500k.

I wait with bated breath for slightest shred of evidence for that.

Was in a town over 100k from Wellington last weekend where the 3 bedrooms were selling in Feb/March for low 400's and 2 beds 300's. This week, now 2 beds being advertised offers over $499K and 3 beds expecting over 500K. Also 2 bed only has 250m2 land.

Expect to see more of this with Kai Ora caps raising from 400 to 500K from April onwards.

Which investor Facebook group did you get that from ?

The money or the bag?!

This is the sort of advise property guru millenials are giving each other - get more credit to prepare for cashflow problems. Cant make this stuff up!

I put in a tender yesterday for a property. The were lots of other tenders and it sold for a crazy high price. Nothing has changed. These changes by the government are not having an effect, and the costs will just be passed onto renters. I would have expected that investors and speculators would have paused to reassess, but that doesn't appear to have happened. Or if it did, it was just for a few days, once they realised that property still has it very good.

Action that will actually have impact will not be touched by Jacinda Arden nor Mr Orr and that is Interest Only Loan.

Trying to deflect with one announcement date after another - trying to play with the time to avoid and if cannot avoid to delay, hoping that panademic saves them again to deflect.

Real Shame.

If/when the latest rules don't work, expect the rule to be tighten again.
Then there will be howls it should have been done in the first place.

I was interested in a new build in a small town as a family home. which was bein sold for about 870,000. 3 bdrm 2bath in a good area but land was only about 600sqm. I see that an investor has purchased it, and it is on trademe, and they are looking at renting it out for $600. That doesn't seem all that great does it?

Sign of frasturation :

Labour government responsible and it seems are waiting for people taking to street before taking action.

If I'm an investor who's concerned about cash flows and the vicissitudes of the housing market and interest rates, I would consider the writing a rent to buy option for the tenants.

The advantages of rent to buy would be I get to lock in the current valuation of my property without selling it with the tenant guaranteeing my mortgage.

As long as they continue to service the mortgage, they'll be in the money. If they failed to keep up thrice in a row, the contract expires and it's up to me to offer another one or change another set of tenants.

With a rent pegged to interest rates and a high break fee, it's absolutely viable to lock down my property valuation, prevent my tenants from being tempted to leave, reduce my interest rate risks to almost zero and it comes with the perks of better tenant behaviour.

If doomsday comes and the tenant defaults, sunset clause applies and I get to keep the property with additional income generated from the contract.

A short chat next round with my tenants over tea on, "How you find it living here?" "Do you see yourself staying here long term?" and " Do you want to own this place?", will do the trick.

Will be seeing my lawyer to draft something after Easter.

It had never been a better time to be in property!

Are those the ones you're raising the rent on?


My impression is that the government wants landlords renting out new modern homes that are healthy and warm. So I get the impression they want landlords to sell existing homes to the market, and for perhaps first home buyers to buy them. But the returns for many landlords is still very good even under the current situation, and investors are still buying them, because the alternative, especially for many cashed up investors, is zero interest at the bank, and negative if you take into account inflation..

CWBW. Creepy.

Rent to buy has been and I guess under the new law a minefield of extra tax. The likes of Habitat can make it work because as a private charity they do not pay tax. Oh I wish I could be a charity.

These were called WRAPS back in the day. Lending by banks was more restrictive vs normal rentals.

Is a loan's principal payment included on the income statement?

The principal amount received from the bank is not part of a company's revenues and therefore will not be reported on the company's income statement. Similarly, any repayment of the principal amount will not be an expense and therefore will not be reported on the income statement.


It's quite simple, all financial accounts are divided into two parts:
1) Cashflow which measures income and expenses
2) Financial position which measures assets and liabilities
Accounting 101 states never to mix the two. That's why DTI is flawed, it mixes "D" (a liability) with "I" (cashflow)

DTI is flawed because it uses debt instead of interest cost, I get that's your point but it's pretty unclear.


DTI is just a ratio, just as 'asset to income' is a ratio It's not 'mixing the two'

So much of these new taxes are a poor copy of the UK laws. I sure shows the influence of the English Trade unionists on Labour party beliefs. Trouble is they left their mother country so long ago they have lost touch with what is happening over there. Many Brits are saying they want to return to the days of the common wealth post Brixit. The Poms abandoned us in the 1970's for the EU and now they want to bring their ideas to our country. We do not want nor need them. Go home and take your funny ideas with you.

The UK rules seem better as they are more sympathetic to small time investors:

"Many Brits are saying they want to return to the days of the common wealth post Brixit", I hate it when people use the word "many" it is a useless term that means nothing. If 1000 Brits said that it would be many, however it would not indicate a significant portion of the populations wanted. Give a percentage or something. Its language the media use all the time without actually having do any real investigation.

The very reason we have high house prices is that we use as our base, land law like the UK Town and Country Act 1947 (I think).

Not only are our houses getting more expensive, but smaller, just like the UK where the average new house size is 73m2, the smallest in Europe.

While Renters and Landlords are battling and blaming each other, it is Govt. policy decisions that have set the rules that we all play under.

Remember when 116,000 loss making rental properties would hit the market due to ring fencing?

Wow that's some serious money in tax the government gained from the ring fencing, going on the numbers of houses given, and the average amount claimed, it's over $800 billion a year, it should have been done earlier.

Maybe they can put some of that money into actually building state homes. Developers aren't going to do it for them, when they can make far more money on million dollar shacks.

Nzda...exactly and equally important for the IRD to check to ensure each and every one of those 116 000 people have paid the tax.

Remember who owns NZ govt, RBNZ & the economy? - good answer.
Anything and everything will be done if necessary, to ensure the continual profit of OZ Banks, nothing will change there. That's the key. They won't operate here, if not for creaming the flightless, below average intelligence bird.. but they cute though, must admit.

The aussie banks not actually owned by aussies you mean?

I recently was interested in a new home to live in last year. I put in an offer, but it went for a crazy high amount, which is normal these days. Saw the next day that it was listed as a rental which was very annoying. So it went from a family home (previously a family home), to a rental. It was being listed for rent by a private trademe trader, rather than an agency. The rent price they were going to get was quite a good return. However I see that this week , only a few months later, it is listed again on trademe, and the photos are of it empty. One of the first things they require of the new tenant is being reliable and paying on time. Sounds like they had problems with being a landlord, and it may have been their first investment house. I think some people think being a landlord is easy, so go into it with a lot of enthusiasm. But getting the ideal tenant I am sure can sometimes be difficult.

I am not a Christian but do I admire some Christians who follow His advice.
-be on guard against greed
-turn the other cheek
-How hard it is for the rich to enter the kingdom of heaven! Indeed, it is easier for a camel to go through the eye of a needle than for someone who is rich to enter the kingdom of heaven

The answer is not its not, investors will keep mortgaging up. Why because the did it when interest rates where at 4% so now that they are at 2.5% its still cheaper than it was.

Here is the math say for every $100 you borrow at 4% you pay $4 *0.67 after tax which is $2.68 that is still more than $2.50 that you pay now. Yes some investors still be in trouble because they borrowed to much because the didn't take that into account when they borrowed, but it in no way makes it an unattractive offer, especially if house prices continue to rise like they have been. And at least part of that cost will probably passed on to renters.