Economist said investors are “nervous about what’s happening”
The government’s changes to housing policy will give owner-occupiers significant advantages over investors according to Westpac economists, who are calling the changes a “pretty dramatic reshaping” of the residential property market.
Westpac senior economist Satish Ranchhod said that the market is likely to see “downward pressure” on prices over the next few years as a result of the changes - however, he said that investors will nonetheless be able to make some significant capital gains on their properties if they do decide to sell, as the profit yield of maintaining those properties will almost certainly decrease.
“Up until now, the way tax incentives have been structured has given investors a bit of an advantage over owner-occupiers, but the changes are going to put owner-occupiers in a much better position relative to investors,” Ranchhod told NZ Adviser.
Read more: Government launches new housing package to address crisis
“That is going to have some important downside implications for where we think prices will go over the next few years.”
“The changes in the interest rate deductibility will mean that many investments in residential property aren’t going to have the same sort of yield,” he explained.
“Some investors may reassess if these assets are where they want to be, and other investors will potentially look at cashing up. This will follow a period where we’ve had very strong house price gains, and so they could still be looking at a pretty substantial increase in the capital value of those assets.”
Ranchhod said that owner-occupiers will be willing to pay less for properties than what is currently standard on the market, which will likely push prices down. However, he said he also doesn’t see investors rushing to sell up - instead, they’re more likely to cautiously wait and see what conditions will look like, and, over the longer term, interest rates will become more important.
“We’re likely to see some downwards pressure on prices, but we’ve still got very low interest rates and there will be less incentive for the Reserve Bank to raise those rates,” he said.
Read more: Government housing plan: “horrific” for investors, good for first home buyers
“The net effect of that reduction in investor demand, combined with ongoing low interest rates, could offer a bit of a buffer for prices.”
“A lot of this comes down to whether investors decide if they’re going to rush to the door,” he concluded. “I do think investors are nervous about what’s happening, but I doubt we’re going to see a big number of forced sales. I do think interest rates will remain low, and we’re probably looking at a flattening out of the housing market for the remainder of this year, and longer-term it will depend on what happens with those rates.
“But these changes are likely to be a drag on price growth over the next few years.”
