Property investors can’t get past their own vested interest

Since late last year, uncertainty about possible tax changes has reduced the housing market’s momentum, and property investors have been increasingly vocal in their efforts to protect their favourable tax treatment. John Key’s speech in February ruled out most of the Tax Working Group’s suggestions about property, leaving only the removal of the ability for landlords to depreciate their buildings, and a bright-line test to strengthen current provisions for taxing capital gains.

The house price dilemma

An overheated housing market proved to be a catalyst for the recent economic meltdown. It spurred unsustainable borrowing and inflated consumption as people perceived themselves to be richer. However the higher house prices have not been underpinned by higher future income prospects. Overcooked house prices still pose difficulties to the economy. This phenomenon sparks a number of questions. Why aren’t asset prices, such as house prices, accounted for in monetary policy directly? How can asset prices be controlled? And what is being done to ensure that disruptive house price booms do not occur again?

Where house sales go, prices don’t necessarily follow

Back in January 2004, Infometrics put outa press release concluding that "property values will begin to fall before theend of this year … some areas that have experienced large price increases (suchas Nelson) could undergo a nasty correction."  After four years of resolutelypredicting an impending slowdown in the housing market, it seems we’ve finallygot it right!

A turning point for property yields?

The popularity of property investment thisdecade has led to declining yields across the board, with rising prices hittingthe returns available from residential, commercial, industrial, and evenaccommodation buildings. With lease agreements coming up for their 2-3 yearrenewal, the property sector is now in the midst of a period where landlordsare looking to recover some of the ground lost during the price boom of thelast few years. Building owners almost always hold the upper hand in thesenegotiations, but current economic conditions suggest they may not have it alltheir own way this time around.

Blame it on the boomers

The affordability of housing is currently ahot topic. But even with house prices so high, over 102,000 properties changedhands last year – implying that housing is still affordable for some. Simpleeconomics tells us that prices would not keep rising if they weren’t beingdriven by demand.

Turn up the volume

There has been a trend towards volumebuilders over the last decade – an increased number of larger firms expandingmarket share at the expense of small building companies.  A similar trend hasbeen evident in other areas of business – supermarkets and department stores,for example.  We believe the trend towards volume builders has further to go,with tighter regulations and the desire to keep building costs down both factorsthat will give larger players an advantage over their smaller rivals.