Liv Lewis-Long, head of marketing at Simplicity, explores whether property is the investment goldmine that it once was. Informed Investor, Spring 2025 Issue 45, pages 58-60.
Ask any Kiwi over 40 their thoughts on property investment, and you’re likely to get a positive response. New Zealand has long been a nation obsessed with property, not just when it comes to home ownership, but also for investing, because we’ve believed it will always go up in value. Which, to be fair, has mostly been the case over recent decades. Owning property has been the ticket to quick gains and long-term wealth, thanks to consistent house price growth, favourable tax treatment, and strong rental demand.
But could New Zealand’s love affair with property be cooling? Indicators around affordability, shifting market conditions and looming regulations suggest it might be. And going off my own experiences in property investment recently, I would strongly agree. But more on that later!
Golden era of property
New Zealand really experienced a “golden era? Of property price growth over the last 30 years. Those who bought in the 1990s, 2000s or 2010s have often seen huge capital gains. Property values roughly quadrupled between 1990 and 2020, creating some very wealthy homeowners today. Add in leverage – banks lending up to 100 per cent of a property’s value using equity in existing housing – and property investment has been a fast track to wealth. Favourable tax rules, including tax deductibility and no serious capital gains tax (don’t come at me with the bright-line test – two years is nothing) and strong rental demand from our ongoing housing shortage have only added fuel to the fire.
Is the landscape shifting?
Recent headlines suggest property investment isn’t the sure bet it once was. Since late 2021, house prices have slowed – and in many regions, fallen – with no clear recovery in sight. Affordability is also now a major issue, with New Zealand’s house-price-to-income ratio among the highest in the developed world. And I’m talking ahead of Australia, Canada, Germany and Sweden. Fewer people can afford to buy, let alone invest in multiple properties. Interest rates, though down from recent 7-8 per cent highs, remain well above the pandemic lows of around 2 per cent. High purchase prices plus bigger mortgage repayments mean rental income now often falls well short of covering costs.
And if you’re banking on capital gains, it’s risky to assume past growth will continue – especially when you look at what many see as an already over-inflated market. There’s also the possibility of tougher tax policy coming into play. The current bright-line test taxes profits on properties sold within two years, but many expect this to change as policymakers tackle the housing affordability crisis. Add in higher healthy homes standards, shifting interest deductibility rules and stricter debt-to-income limits from banks, and the barriers to profitable property investments keep growing.
Eggs in one basket
Many investors with one or more properties are heavily leveraged. Balancing large mortgages and other costs often leaves little to diversify into other investments. I know this first-hand, having over-invested during the sugar rush of low interest rates and FOMO in the post-lockdown years. We’re now over $2 million in debt, facing potential losses on one property (should we take the plunge and sell), and unable to free up much cash to invest elsewhere without selling down our assets.
This over-reliance on property is like putting all your eggs in one (very expensive) basket and runs counter to the principles of diversification. It’s also an illiquid position – we’ve just spent six months unsuccessfully trying to sell one property, missing out on rental income all the while. For those with their wealth tied solely to property, there is a real risk of being “left behind” or caught out, if the market happens to keep struggling for years to come.
Alternatives to property
Since joining Simplicity almost three years ago, my views on property versus other asset classes have evolved. Despite New Zealand’s obsession with housing, there are plenty of other strong investment options for Kiwi investors, each with different benefits and risks.
Modern share platforms make it easy and often fun, via clever gamification, to invest in individual shares and exchange-traded funds (ETFs). While high risk and potentially lacking diversification, dabbling in shares can build investments knowledge with low entry costs.
Managed funds can offer a more balanced option, spreading your investments across markets, sectors and, in the case of diversified funds, even asset classes. When it comes to index funds which are passively managed, they can also be a LOT cheaper than share platforms of actively managed funds.
KiwiSaver is a great example of managed funds, offering diversification plus the benefits of your investment being locked away, tax-efficient, and potentially super-boosted by employer and government contributions (if you’re eligible, of course).
For those after stability, bonds and other fixed-interest investments are also an option, often via managed funds. High yield savings accounts and term deposits carry even lower risk, though of course, with lower risk comes the potential of lower returns. And for those open to less traditional options, there’s infrastructure, private equity, every finance bro’s favourite – crypto – or even fine art and collectables.
Balanced portfolio thinking
There’s growing awareness around the “opportunity cost” of concentrating all your wealth into property. I’ve felt it personally through cashflow strain, property value hits and a lack of flexibility to take up other investment opportunities that I know will be good for my long-term financial future. Many younger investors who never experienced New Zealand’s property golden years are already starting their investment journeys with more diversified portfolios that spread risk (and potential returns) across asset classes and geographies. And I think this is a very good thing, especially in a small, concentrated market like New Zealand.
With the future of capital gains uncertain – no one has a crystal ball, no matter how confident they sound – the next 20 years for Kiwi investors could look very different from the last 20. Personally, I’m aiming for and working towards a more balanced approach: perhaps one investment property, alongside a mix of passively managed index funds, a couple of shares (for fun) and a KiwiSaver that’s working as hard as possible for me.
Property can absolutely play a role in building wealth, but I don’t think it’s the guaranteed win it once was. When reviewing your own investment approach, consider your risk tolerance, timeframes and lifestyle goals. And if you’re unsure, get some independent financial advice. A little expert guidance can go a long way.
