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Residential investment update – Q4 2023

New Zealand's residential investment market in 60 seconds.

Prices starting to recover after big correction Independent forecasters are typically predicting house prices will rise over 2024. Whilst rising interest rates were a key factor during 2022, growing sentiment that long-term rates are peaking will help to moderate this concern.

Financing and rising interest rates cause headwinds Ability to secure financing and overall affordability has been impacted by higher interest rates. Investors and their funders have become more selective about properties. Smaller investors are often using other income sources to top-up negative cashflows.

Investors have been in a holding pattern Challenging conditions have led to reduced acquisition activity by investors, particularly given the progressive removal of interest deductibility by the previous government. The recent change of government is likely to substantially change this situation.

Investors the big winners in the change of government The new coalition government resulting from the 2023 Election has confirmed they will restore mortgage interest deductibility for rental properties between 2023 and 2026. This will boost the income returns for investors and likely lead to more investors buying properties.

Changes to the RTA will open up more options The new coalition government is also proposing several changes to the Residential Tenancies Act (RTA) including rights for landlords to terminate tenancies without any reason, changes to terminational notice periods, and pet bonds. This will give landlords more options for how they manage their properties.

Rents on the rise Surging migration is boosting demand from tenants in the rental market. This is leading to strong increases in rents across the country, particularly in the Auckland region where migrants tend to locate first. Rents are likely to continue rising over the next 12 months, consistent with historic trends.

Download the full report (PDF).

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