Propertyscouts New Plymouth

The changes the property market needs to embrace - 11th May 2018

The changes the property market needs to embrace

by Cameron Bagrie

A fundamental shift looks set to occur across the property market.

Capital gains will be harder to come by and speculative and short-term investors will make way for longer-term ones, more focused on yield and cash-flow. The same shift is set to occur in the dairy industry.

It's welcome, though it will create economic challenges. As capital gains become harder to etch out and asset value adjust, replacement sources of growth will be needed, and quickly if the transitional costs of change are to be minimised.

A decade on from the global financial crisis (GFC) and we have even higher debt levels. Borrowers are being protected by low interest rates, for now.

Central bank are wary of the financial stability risks high leverage brings.

Surging house prices have contributed to inequality, intergenerational inequity and a middle-income class of poor.

They have income to service a mortgage but not much is left to live on. Each additional increment of credit added has less to gross domestic product.

Across asset classes we now have stretched valuations, tighter credit conditions, growth in a mature stage of the economic cycle, the social conscience of society being pricked as intergenerational issues come to the fore, potential foreign investment restrictions, a basing in interest rates and a pending turn in the global liquidity cycle as the US Federal Reserve lifts interest rates.

Various asset classes face a raft of other changes or potential changes. In housing we have the pending removal of negative gearing, we have restrictions on foreign buyers.

A capital gains tax is inevitable.

The bright-line test has gone from 2 to 5 years. A shift in the landlord-tenant relationship towards the latter is underway.

Landlords are facing extra costs as requirements to provide healthier homes increase.

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