Over 30 percent of property investors recording annual losses on average $9000

A newly released paper has revealed over 30 percent of Kiwi property investors are recording an annual average loss of almost $9000, making no income from their investments.

The paper was prepared in December 2020 for Housing Minister Megan Woods examining the potential impact of the Government's big housing policies, which were announced in March.

It shows 37 percent of property investors (107,530 taxpayers) reported an annual loss to Inland Revenue, with an average loss of almost $9000.

"Most allowable deductions reflect real cash costs to investors e.g. insurance, body corporate fees, maintenance," the report said.

The 63 percent of property investors who reported profiting from their properties recorded an average profit of $14,000.

If the proposed changes (extending the bright-line period, limiting interest-only mortgages, removing the deductibility of mortgage interest and temporary rent controls) are implemented, the report said landlords may:

  • Increase rent to cover additional costs 
  • Take their property out of the rental market
  • Reduce costs by lowering maintenance
  • Sell one or more properties. 

"Property investors will weigh up their willingness and ability to pay for any increased up-front costs against the returns to the investment, including rents and untaxed capital gains," the report said.

"It is unlikely that investors will be able to fully pass on additional costs through increased rents. Stressed renters are already at the limit of what they pay and may respond through sharing housing costs and crowding. Rising rents can also lead to more well-off renters opting to buy, subject to being able to raise a deposit, or paying higher rent to secure properties."

Infometrics economist Brad Olsen told Stuff the significant amount of landlords not recording profits, shows that investors are expecting big capital gains.

"You very rarely hear of people going into property investment saying I'm going to get so much money in rent. Rent will help cover the costs, and sometimes a little bit more, for some, but they're holding to sell at some point ... not flipping but long-term investing in an asset that will eventually return something positive."