Why New Zealanders Invest in Residential Rental Property

In New Zealand, investing in residential rental properties is a popular choice for individuals looking to grow their wealth. Several factors make this type of investment particularly appealing, ranging from ease of financing to historical gains in property value. Let’s delve into the key reasons why so many Kiwis choose to invest in residential rental properties.

Ease of Access to Financing

One of the primary drivers behind the popularity of residential property investment in New Zealand is the relative ease with which individuals can obtain financing. Banks and other financial institutions are often more willing to lend for property purchases, especially residential properties, because they are considered lower-risk compared to other types of investments.

Moreover, the leverage available when buying property means that investors can borrow a significant portion of the purchase price. With low interest rates, this makes property investment accessible to a broader range of people, enabling them to potentially earn returns on a larger asset base than they could otherwise afford.

Tangible Asset with Perceived Security

Residential properties are tangible assets that provide a sense of security for investors. Unlike shares or other financial instruments, property is something physical that investors can see and touch. This tangibility often makes it easier for individuals to trust in their investment, especially those who may not be comfortable with more abstract financial products.

Additionally, owning a rental property means having a real, usable asset. Even if property prices fluctuate, the investor still owns a piece of land and a building that can be used, rented, or sold. This inherent value in the physical asset itself provides a level of security that is particularly appealing in uncertain economic times.

Tax Advantages of Residential Rental Property in NZ

Tax treatment is another significant factor driving investment in rental properties in New Zealand. While the tax landscape has changed over the years, certain benefits still make property investment attractive. For instance, the ability to deduct interest on mortgages, as well as expenses like maintenance and property management, can lower the overall tax burden on rental income.

Additionally, capital gains on property have historically been untaxed, though this has changed with the introduction of measures like the bright-line test. This taxes gains on properties sold within a certain period of purchase. Nevertheless, the perception of favorable tax treatment continues to make residential properties a preferred investment.

Historical Residential Property Gains in NZ

New Zealand’s property market has a long history of strong performance, with significant capital gains recorded over the decades. This historical trend of rising property values has created a widespread belief that investing in real estate is a reliable way to build wealth.

Many investors have seen substantial returns from property investments, reinforcing the notion that residential real estate is a sound, long-term investment. Even with market fluctuations, the general upward trajectory of property prices has led to the perception that property is a “sure thing,” especially for those looking to secure their financial future.

Summary – Why New Zealanders Often Invest in Residential Rental Property

Investing in residential rental properties remains a popular strategy among New Zealanders. This is due to a combination of factors: accessible financing, the security of owning a tangible asset, tax advantages, and a strong history of property value appreciation. These elements work together to create an environment where property investment is seen as both attainable and potentially lucrative.

For those considering this path, it’s essential to stay informed about the market and tax changes to maximize the benefits and mitigate risks associated with property investment.

Auckland Rental Property Accountants

At Business Like NZ Ltd we have extensive experience in NZ rental property accounting. Our team comprises current and former property investors, ensuring we bring practical, hands-on knowledge to the table. If you are a current or future property investor, get in touch with us today to see how we can help you maximize your investment returns and navigate the complexities of property accounting.