'It's bloody tough': New rules and the Whanganui market

Jason George (former WHS student) has been seriously looking to purchase a home in Whanganui in recent months but still can't see how he'll finally get on the ladder in the current market.

"I've been keeping my eye on the market since Covid but I've obviously been seeing the prices just go up and up and up since lockdown," George said.

The 33-year-old said he hadn't ruled out getting into his first home but in the current market it would be a tough.

This week the Government announced a raft of measures aimed at helping people like George by tilting the market towards first-home buyers ahead of investors.

It will extend the bright-line test for existing homes from five to 10 years, meaning people who sell an investment property within a decade will have to pay tax.

It will also remove the ability for investment property owners to claim tax deductions from mortgage interest payments.

Other changes mean single first-time borrowers can apply for a mortgage under the First Home Loan scheme, with a five per cent deposit underwritten by Kainga Ora if they earn less than $95,000 a year - up from $85,000.

For two or more people buying together, the income cap rises to $150,000, up from $130,000.

In Whanganui, to be eligible for a first home grant of $5,000 (or $10,000 for new builds) the cost of the property must be below $400,000 for existing properties or $500,000 for new builds.

George said being a builder meant he could look at houses that needed a bit of work.

"I could possibly do it, but I'd be stretching my budget and living pretty meagrely, assuming the bank actually gives me the money."

On the first home grant limit, George said $400,000 just isn't realistic for Whanganui.

"I always knew there was a limit on prices. You'd be lucky to get a house for less than $400k in Whanganui at the moment," he said.

"It's bloody tough."

That sentiment is shared by Ritesh Verma, the branch manager at Property Brokers Whanganui.

According to Verma, the market is currently so flooded with buyers that a property under $400k is a rare occurrence.

"We're still seeing quite a lot of first home buyers in the market, usually between the $350-500k bracket. But they are competing, there's not a lot of good quality property," Verma told the Chronicle.

"There's basically nothing on the market for under $300k, and even if something is priced at the mid-threes, with competition that takes it up to $400k and takes [first home buyers] out of play."

He said the current market was so competitive that some first home buyers were now writing letters to vendors outlining their personal circumstances in the hope of lowering the price.

"You'd be surprised, but most vendors do feel sorry for the first home buyer, and if there's a couple of grand in it that letter might sway them."

Verma said he believed the policy changes could lead to a drop in what he called bandwagon investors, but there wouldn't be a substantial shift.

"This will probably slow this a little bit. I think you'll find that your true investor that owns a few properties will be fine. They're generally long term.

"The ones getting on the bandwagon are running it tight in regards to interest rates and return on investment. Any change in policy can affect those people."

Editor of One Roof Owen Vaughan said the Whanganui market had been particularly hot post lockdown and the recent changes would affect those who had recently invested as opposed to those who invested before the lockdown.

"Those who bought at the height of the market and bought on the expectation that they would be able to deduct off their mortgages might have to re-run the numbers."

The changes will cause a bit of uncertainty for both renters and investors, Vaughan said.

"They may have to sell as a result or look at increasing the rent. It will cause uncertainty for renters, for sure. If you are currently renting and trying to save for that first home, you may have to look for cheaper accommodation.

"We'll just have to wait and see if these changes slow the pace of growth, as it is really strong at the moment."

Whanganui and Manawatū property consultant Kirsty Healy said the move wouldn't do much to help first home buyers and would only act as a hindrance to property investors.

"It doesn't make much sense to us," she said.

As well as having an extensive portfolio herself, Healy leads multiple property investment groups in both Palmerston North and Whanganui and said the reaction has been much the same across the board.

Healy said the extension of the bright-line test wouldn't necessarily have a huge effect on speculative investors as they were already being stung by the tax.

"It makes no sense - essentially what [the government] is trying to do is stamp out speculators, traders and flippers. This doesn't do that at all, this group of people already pay tax," Healy said.

But it was a different story when it came to interest deductibility changes, with Healy saying there would be a real impact on investors across the board.

"The general consensus of opinion that I'm getting from investors is that the change will lead to a rent increase."

Investing in Whanganui property for 15 years now, Healy said she had sympathy for first-home buyers grappling with the market but believed the issue lay with supply, not investment.

"It isn't right that we have a market which when you compare the incomes that people are now getting isn't going to allow them to save enough for a deposit to get into a highly inflated market," Healy said about first-home buyers.

"But the crux of the issue always has been supply and demand. Nothing will change until supply changes."

Ethan Griffiths
Whanganui Chronicle 27/3/21