Over the last month I have spoken at Property Investor Associations about political policies affecting our industry. It wasn't good news on the whole and I have been asked by a number of younger investors' if it is still worth investing in rental property.
My answer has been yes, but there is no doubt that policy changes over the last few years is definitely making it harder to provide homes for tenants.
The ability to claim depreciation was taken away as part of the 2010 Tax Revue. In November last year, Minister of Finance, Bill English, told parliament that this policy change raises around $700 million per year from Property Investors'. That is a cost of about $1,400 per rental property per year or $27 per week.
Rental prices rose $20 shortly after the Tax Working Group announced their plans for taxing rental property, but stabilised when removing depreciation was the only recommendation that Government implemented. Although many Rental Home Providers were relieved that most of the Tax working Groups harsh recommendations were rejected, once they realised the affect on their cashflow there was another round of rental price increases.
LAQC's were removed making it harder to claim losses on rental property in the year that they were made. Once again this has an effect on cashflow.
Changes were made to the Tenancy Tribunal that increased the time it took to get a hearing which has led to higher losses for some rental property owners.
Loan to Value (LVR) restrictions have affected many investors who are no longer able to buy rental property because they do not have sufficient equity.
Next month the loans of anyone owning five or more rental properties will no longer be classed as residential. While it is uncertain what the practical ramifications of this will be, it wasn't aimed as a positive outcome for rental property owners.
Now we are under threat from a Warrant of Fitness on rental property, plus Ring Fencing of losses and a Capital Gains Tax.
It is little wonder that some investors, especially new or aspiring investors, may be thinking it's all just too hard.
At least the people that I spoke to were in a Property Investors' Association and were therefore surrounded by others who can help them overcome obstacles they may face.
But what about the people who aren't members of an Association and don't have any support?
Every year a percentage of rental property owners sell up for a variety of reasons. They may want to use the funds for another purpose, they may be setting themselves up for retirement or they may have had one too many problems with a tenant. If policy makers make it too hard for people to invest in these properties there may well be a shortage of homes for tenants.
Some would argue that this would reduce house prices and first home buyers would get an opportunity to own their own home. But when a rental property is sold to an owner occupier, it usually leads to fewer people living in the property and ultimately a shortage of rental property.
While this reduction in competition may be good for those still owning rentals, it is unlikely to be good for tenants.
Rental property owners are an important part of the economy. Those who would make it harder for them to provide homes for a third of our population should think long and hard about what would happen if a number of them decided to quit.
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