Who would have thought lending rates would start to drop despite an unchanged OCR. It certainly came much sooner than most experts expected and at a seemingly accelerated pace. So, it’s an opportune time now to dive back into the property market.

Let us take stock of the lessons learned before planning for opportunities that lie ahead.

The Market

In the current property market, there are more sellers than buyers. Apart from the usual cycle, the excess supply was in part caused by owners who are freed from the shackle of the five-year bright-line test (if they purchased after 2018) and new property owners who purchased at the post-Covid peak, but need to sell as they cannot service much higher interest rate.

The immediate prospect remains subdued. As one economist commented, it’s unlikely we will see a return to the unprecedented post-Covid spike in property values. And that is before considering what the impact of the new debt-to-income ratio policy will bring once implemented.

These sentiments all prompted a rethink. How did those seasoned property investors plan and navigate their investment journey in the past?

Expectations

Have an investment strategy and manage expectations. Property investment is not a get-rich-quick scheme. You need to consider borrowing power, family and retirement plans, while balancing yield and capital growth equations. The lesson here is not to over-stretch.

Tax rules are bound to change. Who would have thought bright-line test rules could change four times in nine years and full interest deduction would be restored.

When deciding on a particular tax structure, always consider your personal and business circumstances, not just property investment alone. Often there is more than one way to get a deduction. Review your tax structure regularly with your tax adviser.

Granted, no-one has a crystal ball, and you cannot get it right all the time. Some of our clients would rather opt for certainty, hedging their costs by adopting a rolling average interest rate across different fixed rate periods than trying to pick a fixed-rate term. Maintaining regular contact with your mortgage advisors is key to knowing when to make the right call.

Watch Impulse

Buy right and be patient. Do not fall for the Fear Of Missing Out. Seasoned investors are usually more patient and will resist buying on impulse. They would rather miss out if it does not fit their overall investment strategy, which is particularly relevant given current market conditions.

Always have a cash buffer. Despite us heading back to full loan interest deduction, you may still have a cash deficit if your rental portfolio is not delivering positive cashflow. We are aware more lenders now require clients to start principal and interest repayments after a prolonged interest-only period. Can your cashflow sustain this?

Finally, surround yourself with wise counsel. Join your local property investors’ association and hear their success stories. Make sure your professional advisors are as enthusiastic as you in your investment journey. Happy investing.

Stephen and his team specialise in advising on property-related transactions, valuation and restructure services, and tax planning. PKF Withers Tsang & Co Phone 09 376 8860, www.pfkwt.co.nz