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Tax changes prompt some investment property sales, report claims

Government tax changes have hit landlords’ future cash flows and left investors requiring a higher yield from their properties, according to Infometrics New Zealand Housing Outlook report.

The report, compiled for QBE Lenders' Mortgage Insurance (QBE LMI), claimed the removal of landlords' ability to treat the depreciation of buildings as a tax deductable expense has prompted a focus on property yields to improve cash flow.

"As a result, investor demand for property has been reduced and, in some cases, owners of rental property have been looking to reduce their holdings."

However, Infometrics managing director Gareth Kiernan said signs of investors’ offloading property varied depending on the region.

Citing low listings numbers, he said it was apparent Auckland investors' have been holding onto their properties, though there were signs of investors' selling up in some provincial locations.

"If you look at specific markets, Wanganui is probably a good example, my understanding of the market is there's a reasonable amount of rental property and traditionally investors have got very good yields compared to other parts of the country," he said.

"We have seen upward pressure on rents there and some downward pressure on prices, so that suggests an adjustment coming through and some investors potentially reducing their exposure to residential properties. Masterton is another area where there's been a lot of properties on the market at investor level, so it probably depends on which regions you look at."

The report also claimed investors' offloading properties had helped lower prices.

"Although nationwide rental inflation had lifted to 4.8% per annum by May, some investors have been looking to reduce their holdings, placing some downward pressure on property prices at the bottom end of the market," the report said.

The report said that upward pressure on rents is now evident in the Auckland market, with rental growth in the region hitting a three-year high of 5.9% p.a. in June.

The report also claimed an improving economy over the coming 18 months would see rents increase as landlords sought to improve rental yields.

Auckland and Christchurch were highlighted as regions likely to see the greatest upward pressure on rents due to the relative shortage of accommodation, though increased spending from the agricultural sector could push rents up in provincial centres.

However, "even with a pick-up in rental growth throughout 2012 and into 2013, any increase in rental yields is likely to be limited by house prices rising at the same time."


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