Changes to the bright-line rule from July 1 will lead to a lift in listings, experts have told OneRoof, but the buyers may not be there to pick them up.
Kiwis who sell any investment or secondary properties bought between 2019 and 2022 will no longer be taxed on any gain they make, following the reduction of the bright-line period from 10 years to two years.
Investors facing mounting costs due to recent hikes in interest rates and insurance premiums are likely to take up the opportunity to sell tax-free.
Real estate agents across the country told OneRoof they had seen an increase in enquiry from stressed mum and dad investors in the weeks leading up to the rule change.
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However, they shut down expectations that a flood of cheap investment properties was about to hit the market.
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Bayleys Canterbury has two auctions lined up for investors looking to take advantage of the bright-line rule change. As of last week, six investors had signed up to sell at the first auction, to be held at the end of this month.
Bayleys Canterbury investment sales specialist Angela Webb said some investors were selling their properties because they were hurting financially, although some of her vendors were simply looking to alter their investment portfolios.
“If they’ve had property for 20 years, they might start selling off some of the smaller stuff they just picked up because it was cheap at the time and reinvest that money into a lot bigger or newer stock.”
Bayleys investment sales specialist Angela Webb says some investors are selling as a result of the changes to the bright-line rules. Photo / Supplied
The properties to be auctioned at the end of July will start coming online from the end of this week and range in value from $400,000 to $3 million. “What surprised me is we don’t have too much new townhouse stock. It’s all the second-hand properties coming onboard.”
Webb was confident there were buyers out there. “I’ve had phone calls and messages from buyers saying, ‘What’s coming up in the auction day? We are seeing you are doing a bright-line auction day – what’s going to be in it?’ There are always buyers out there looking for a bargain.”
Just last month six bidders competed in the Bayleys auction room for a five-bedroom student rental on Clarence Street, in Riccarton, Christchurch, which sold under the hammer for $748,000.
Bayleys Canterbury general manager Rachel Dovey said Christchurch was an affordable market for first-time buyers and investors. “Let’s face it you couldn’t buy a unit in any of the other main centres for $400,000.”
Both agents pointed out there was potential in the student rental market for investors who could purchase property around Ilam, Sockburn, Avonhead, Riccarton and Upper Riccarton.
Ray White Manukau co-owner Tom Rawson says his agents are expecting the bright-line rule change to boost market activity and bring out more sellers and buyers. Photo / Supplied
Tom Rawson, who co-owns the Ray White Manukau franchise in South Auckland, said his agents were expecting an increase in activity from both sellers and buyers as a result of the bright-line rule change.
His office already had 30 properties signed up for a large auction it is holding at the end of the month, with many of the properties on the block being sold by investors.
The properties so far were scattered around South Auckland including Otara, Otahuhu, Mangere, Takanini and Papakura, and ranged in value from early $600,000s to $1m-plus. They were a mix of new builds and older homes.
Tall Poppy Kāpiti Coast salesperson Vanessa Bond had also noticed a lot of mum and dad investors getting rid of their rental properties because they couldn’t afford to keep them.
She was selling seven investment properties at the moment and said in most cases it was not because of the changes to the bright-line rule, but because people were struggling. “It’s so hard out there for a lot of people,” she said. “They just literally can’t afford to hold onto them. They went from a profit of $500 a month and now they are paying $1300 a month to top it up.”
The landlord of a three-bedroom, one-bathroom house plus a one-bedroom, one-bathroom unit on Mamaku Street, Paraparaumu, in Kāpiti Coast, is one of a number of investors selling up right now. Photo / Supplied
A two-bedroom, one-bathroom unit on Rimu Road, Raumati Beach, in Kāpiti Coast, is another rental property for sale and likely to be bought by a first-home buyer or retiree. Photo / Supplied
The investment properties Bond is selling are in the lower end of the market and range from a two-bedroom unit at 11A Rimu Road, in Raumati Beach, asking for enquiries over $495,000 to a three-bedroom, one-bathroom home with a separate one-bedroom, one-bathroom unit downstairs at 19 Mamaku Street, in Paraparaumu with a price indication around the early $700,000s.
However, Bond said there were no investors looking in her area so those properties once sold would disappear from the rental pool. Instead, she expected the properties she was selling to be bought by the many retirees or first-home buyers who were looking to move up from Wellington or the Hutt because it was cheaper and the weather was better.
The opening of Transmission Gully motorway two years ago had made Kāpiti Coast even more accessible to the Wellington CBD and was now about a 40-minute commute, she added.
Wayne Shum, senior research analyst at OneRoof‘s data partner Valocity, said the investors who bought between 2020 and mid-2022 and had seen their properties rise in value would benefit most from the bright-line rule change.
Investors who were unable to cover their costs would be tempted. “You’ve got to ask yourself how much can you keep topping up $20 a week where if you walked away tomorrow you have $125,000.”
However, some hold on for more favourable market conditions. “If you look at the market now, there’s probably not enough buyers as it is.
“If you’ve got increased listings and not as many buyers, then of course it’s not going to be a great time to sell right now and a lot of investors will hold.”
Bayleys head of insights, data and consulting Chris Farhi agreed there was unlikely to be a huge flood of investors come through unless they met a very specific set of circumstances due to the market being a bit softer than usual.
“We don’t see it being a huge wave of property hit the market, but there will be some who think now is the right time to ditch those properties.”
He said those who bought during market peak were less likely to see capital gain because of the subsequent correction.
Bayleys head of insights Chris Farhi does not expect a huge flood of investors to sell up due to changes to the bright-line test. Photo / Fiona Goodall
However, Opes Partners resident economist Ed McKnight had a different view and expected the bright-line rule change would boost the number of listings considerably.
“I think as soon as that bright-line test changes you could expect a lot more listings come on the market – maybe they bought in 2020 – people who bought in 2020, even though house prices have dropped, if you bought in 2020 you might be $200,000 up.
“Some investors would have bought in a low interest rate market, they’ve seen house prices increase, they want to sell the property because they are struggling with high interest rates, but if they sell before the bright-line test changes they could be on the hook for $75,000 worth of tax so that’s pretty unpalatable. But as soon as that bright-line test changes some people will be able to sell those properties tax-free so that’s why I do think we are going to see quite a number of listings come on and that will keep house price growth pretty low for the rest of 2024.”
However, McKnight said because there was only a limited number of properties that would benefit from the bright-line change, then prices could lift after summer once they had worked their way through the market. This would also align with when he expected interest rates to drop.
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