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Market Comment

By Liam O'Boyle

The first quarter of 2010 has seen a change in the residential property market.  2009 saw a strong recovery of the residential property values, driven by a lack of properties available for sale, also influenced by the investor’s choice of where to invest and banks quick return strongly supporting residential property investment.

Early 2010 have seen two factors that have created a cautionary approach to buying decisions, especially investors.

Firstly unemployment figures were higher than expected and secondly the governments stated intention to make taxation changes in relation to property investment.

These two events coupled with an increase in residential properties available have been the catalyst for the market change amplified by record low sales numbers in January and February 2010.

The Real Estate institute of New Zealand (REINZ) has been the early provider of sale statistics to the public and government, part of a Real Estate Agency obligation was to furnish those office sales returns The Real Estate Agents Act 2008 came into effect on 17 November 2009, which ended compulsory membership of the REINZ.

The level of ongoing reporting from the industry is under question as the early part of 2010 has seen 2 major brands, Barfoot & Thompson & Ray White, who compiles sales returns on the same basis as the REINZ are not reflecting the same statistical sales data.

Ray White increased its sales volume by 10% in February 2010 compared with February 2009 against the REINZ reported decline of 3.8% over the same period

The issue of accurate sales statistics aside, one thing is clear, current buyers have more choice.  Good property in sought after locations, with seller’s expectations realistic, is still seeing good activity and sales results.

The residential investment buyer has become more cautious, with the Governments treatment of Residential Property being detailed in the budget 2010.

Announcements over recent times has clearly indicated deprecation of property assets will be wiped, but a land tax or comprehensive capital gains tax appear off the agenda. 

The offset of losses against other income appears an area that may still be under consideration, commonly known as ‘Ring Fencing Losses’ i.e. if your rental property has been showing a financial loss; i.e. interest, depreciation repairs and maintenance, management, local authority rates plus insurance equal more than rents received,  you have been able to offset this loss against other income thus reducing tax liability.

The asset would have to be held in common ownership or a Loss Attributing Qualifying Company, referred to as a LAQC.

Residential Investment Property

Residential Property Investment moving forward is a medium, long term investment and with any investment the ultimate decision is based on a number of factors, if it is reliant on the policy of the Governments of the day then the decision to invest must be questioned.

The reality is housing is a humans second greatest basic need, food being first.

We have an increasing population, a period of record low new home construction, a capacity for first home buyers to buy limited, and likely rise in GST which will affect new homes, these factors will ultimately see rents increase.

Currently we have experienced some recovery of rents for quality homes in sought after locations.

Tony McPherson

Director

Ray White AJ McPherson & Associates Ltd Licensed (REAA 2008)

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