Why Property vs Other Investments
Residential property has been a popular and rewarding investment choice for New Zealanders looking to get ahead , create wealth and secure their financial future .
While recent changes to the lending and taxation landscape have reduced some historically held benefits for investors , there are many reasons why residential property remains a hugely attractive investment choice .
Investment Stability : Despite all investments carrying some element of risk , investing in residential real estate is widely regarded as a low risk option , even leading to the well known saying ‘ safe as houses ’.
Property is tangible and easy to understand , and its relative stability as an asset class cannot be ignored , similarly the long-term trends in capital gains echo the famously known quote -The only bad time to buy property is later .
Demand : Across almost all areas of New Zealand , we continue to see increasing levels of demand for the rental properties we have available . Ray White receives between 6,500 - 9,000 individual tenant applications every month , yet this translates to just 900 - 1,200 new secured tenancies , largely due to a lack of available rental stock .
Current net migration figures and the number of new arrivals coming to live in New Zealand add further to the predicted long-term demand for rentals . Without significant changes to the number of available rental properties , this demand will continue to place upward pressure on average rental prices .
Leverage : It ’ s important to understand the role that leverage plays when investing in residential property , being the ability to borrow the bulk of the cost of buying a property , and then pay this back over time . You can ’ t do this with shares , currency or most other forms of investment as banks often see these as too volatile
Leveraging gives investors the ability to benefit from capital gains on the full purchase price of the property , not just the initial deposit made . Imagine the following example of how to use property for leverage vs other investments :
You buy an investment property for $ 650,000 with a 20 % deposit - possible with non bank lenders in the current LVR framework - and borrow the balance of $ 520,000 .
Fast forward five years , you sell the property and achieve a sale price of $ 910,000 ( a roughly 8 % annual increase in property value ) - what has happened to your initial $ 130,000 investment ? It ’ s doubled . Leveraging has allowed you to make a 100 % capital return on your initial investment .
Capital gains : While growth in property prices is not guaranteed , nor is it something anyone can perfectly predict , it ’ s safe to say that over time statistical trends show the value of a residential property will consistently move upwards .
Illustrating this upward trend , although New Zealand house prices ( Ex Auckland ) have decreased in value by 9 % from their peak in February 2022 , if you look at the 30 year period to March 2024 they have increased at an average rate of 6.85 % per year , with Auckland showing a 7 % increase for the same period . ( Source : REINZ )
While there are many factors that influence an investor ' s achievable capital gains on rental property , it is of no doubt that residential property remains a secure long-term investment option that can provide real returns for the astute investor .
Landlords should always seek advice pertaining to their specific investment goals and needs , however , property investment provides muchneeded housing for New Zealand tenants and allows landlords to reap the many benefits that remain vs other forms of investment .
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