We noticed a growing number of people interested in buying first home, upgrading family home, or developing properties. The new housing rules spook many investors, and they are doubting if it is still worth investing in property now.

Below we list the top seven reasons why it is still worth investing in property in New Zealand under the current economic conditions.

Is it still a good time to invest in property?

Video Timeline

1. Why you have to invest? - 00:44

2. Top 7 benefits of investing in properties - 03:32 

3. Is now still a good time to invest in property in New Zealand? - 09:23

1. Why you have to invest?

There are numerous ways to grow your wealth. Whether you choose to invest in stocks, managed funds, business, real estate, or other asset class, you can’t afford not to invest if you plan to live in New Zealand when you retire. This is because:

If you don’t start to invest, you’ll only rely on superannuation after retirement. For example, people who live alone currently receives $504 per week. Couples receive $770 per week according to New Zealand’s current superannuation package. It's expensive to live in New Zealand these days. The superannuation package maybe only enough to cover your living costs but not sufficient to live a decent lifestyle.

So, you need to start building passive income from now, and the target amount is based on your lifestyle and family structure. Let’s say your goal is to generate $100,000 passive income before tax per year per person. On top of your mortgage-free home, you will need net investment assets value of $1.67 million ($100,000 divided by 6% return) – this number is quite significant, so you need to start planning now.

New Zealand government has removed the interest deductibility rule, which means investors can no longer offset the interest costs against rental income. The recent housing reforms may daunt many people, but from my experience, I do believe property investment is still one of the most efficient ways to help you build wealth and passive income for the long run.

2. Top 7 benefits of investing in properties

It’s recommended never to put all your eggs in one investment basket, but property should be at least in one of your baskets for the following reasons:

(1). Property is the most stable asset class.

In general, the price of property is far less volatile than other types of investment. If you buy the right property in the right location, it's guaranteed that there will always be a certain demand as people need a place to live, and solid growth in house prices.

So, to minimise risks in property investment, it is vital to purchase in a big city with population growth and diversified industries.

(2). Predictable capital growth

In New Zealand, the capital growth of property is predictable. According to the statistics, property prices doubled every 10 -12 years. In other words, if you purchase a property valued at $1 million today, the price will be likely to go up to $2 million within 12 years.

(3). Easy to start

Unlike buying other investments like stocks, to get started, property investment only requires some basic knowledge, and it doesn’t necessarily require the “expert” knowledge.

From my personal experience, when I bought my first property, I only knew the importance of location. Apart from that, I had zero knowledge. But when I look back, all my properties have gained significant value over the last 12 years.

To make it clear, I am not saying you won’t need deep knowledge and experience in order to build equity and grow the capital value fast. Instead, to get started, you’ll just need to understand basic property investment principles.

What’s more, I delegate my properties to a property manager. So, I don't need to keep up with all the latest regulation changes, and I can avoid dealing with tenants directly. In other words, it's largely set and forget, and they produce passive income for me.

(4). The power of leverage

This part is to do with finance.

What does the power of leverage mean for you? Say you have $4, the bank will lend you $6 to invest so that you can buy $10 assets, and you can keep all the gains when the property grows up in value. On the contrary, you can’t borrow to invest in other assets such as stocks.

Let's take an example. According to the current loan-to-value ratio (LVR) of 60% for investment property loans in New Zealand, it means if you invest in $200K cash, the bank will lend you $300K, and you can buy a $500k property. Let's assume that the property price up by 10% in a year, which means you’ll earn $50k from the property, and that $50K will be all yours (the bank won’t take any dividend from that).

However, if you invest in the same amount of money ($200k) in stocks, you’ll only get $20k in return based on the same growth rate of 10%. Now, it’s clear to see that in this case, when investing in the same amount of money, you’ll get a higher ROI in a property (25%) than stocks (10%).

The leverage in property is far greater than a share portfolio, making property investment one of the most efficient tools to help you grow your wealth. 

(5). Add value to a property

This part is in your control – you can add value to the property, such as doing some renovation, adding a minor dwelling like a granny flat, or subdivide it if you have the capacity. However, if you buy other assets such as a share, you buy it at the market prices with no option to influence the prices, make sense?

(6). You can insure the property.

You can insure your property, but you can't insure stocks. In fact, property insurance is mandatory when borrowing for buying property In New Zealand. In the worst-case scenarios, like the property is damaged or needs to be rebuilt, you will get paid to cover the cost while there’s no insurance for other investments.

(7). More people want to live in NZ (after COVID)

New Zealand has successfully battled community transmission of COVID-19 so far among the whole nation. Meanwhile, the pandemic is still raging on in other countries, resulting in that people from overseas are showing a stronger desire to migrate to New Zealand. Surely growing population will push property prices up in the future.

3. Is now still a good time to invest in property in New Zealand?

The recent Government’s housing reforms regarding the removal of interest deductions on residential investment properties hurt investors the most – paying more tax and having less in cash flow eventually. However, the above are seven reasons why you should continue investing in property in New Zealand.

It is essential to review your cash flow and ensure that you can afford to repay the loan against the investment properties in the long run. Remember, property investment is a long-term game – as long as you can afford to keep your properties, it will help you generate wealth from the capital growth over the years to have passive income for your retirement plan.

So, is now still a good time to invest in property?

Some investors may be spooked by the recent housing policy changes and thought it wouldn’t be a good time to invest now.

The best time to invest in property is probably 10 years ago but the second-best time is now. Even though the house prices may fluctuate from time to time, I strongly believe the value growth in the long run.

Meanwhile, New Zealand banks are reviewing their lending policies to cope with the recent changes to housing rules. On the 10^th of May, ANZ announced to decrease the percentage of rental income they take into consideration, making the first move among mainstream banks. We won’t be surprised to see the other banks follow, and your borrowing capacity will be reduced significantly in the near future. So, if you are thinking about buying a property, please act now. 

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Read more:

The interest rates are dropping again, not as predicted by economists

ANZ tightens servicing for rental property income, will this affect you?

How may the removal of interest deductions hurt your borrowing power?

Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.