Andrew King, vice-president of the New Zealand Property Investors’ Federation, says it’s common to experience a flood of rental listings during the slump phase of the property cycle.

“In a slow market, tenants have a high degree of choice and often face nervous landlords who may be willing to reduce rents just to secure a tenant,” he says.

King monitors TradeMe rental listings, and says May and June saw the number increase by 50 per cent from about 6800 to more than 10,000.

While growth in the number of listings has slowed by about 10 per cent during the past 10 weeks in many areas, prospective tenants are still generally spoilt for choice.

Rental listings in Auckland city are up 40 per cent from early May, and are up 25 per cent on the North Shore, 55 per cent in Waitakere, 20 per cent in Manukau and up by 40 per cent in Papakura.

Tauranga and Whangarei have 60 per cent more listings than in May.

During August, the number of rentals listed in Hamilton was 90 per cent higher than in May.

If they want to secure good tenants quickly, King urges landlords to present their property attractively and use various avenues to promote it.

Auckland professional Rachel Rae, 36, is pleased she decided to look for a new rental property this month. She and her flatmate moved from a trendy two-bedroom Herne Bay apartment to a spacious three-bedroom home in the beachside suburb of Torbay on Auckland’s North Shore last week.

Rae says they found there were “stacks” of attractively priced rental properties on the shore and faced little competition from other renters.

For the same rent as they were paying for the Herne Bay apartment, they found a home with twice the floor space, an extra bedroom, plenty of outdoor living and a sea view.

And because they held the bargaining power, they were able to sway the landlord into allowing them to move in with a cat and dog. Rae is working in Albany so wasn’t worried about moving from the central city.

Sylvia Lund, owner of Just Rentals, which lets properties in Auckland’s Remuera, Meadowbank and St Johns, says August was the toughest month for rentals its office has experienced in the past nine years. “The phone just isn’t ringing.”

With an influx of rental properties, mostly homeowners choosing to hold off selling until the market turns, Lund says tenants want rent reductions.

She says some properties sit vacant for up to six weeks, while earlier this year the process took half as long.

Last week, after struggling to fill a two-bedroom Kohimarama property near the beach for $420 per week, her office advised the landlord to drop the asking price to $380 per week, but still did not get a nibble of interest.

“There are too many properties and no sense of urgency [among renters],” Lund says.

Crockers Property Group’s list of median rental prices in Auckland’s suburbs show the popular or posh suburbs – such as the bays, Epsom, Sandringham, Devonport, Birkenhead, Remuera and Orewa – experienced rent reductions of between 1 and 22 per cent during last month, with one- and two-bedroom homes taking the greatest hit.

Demand remains strong in trendy, city-fringe suburbs such as Ponsonby, Grey Lynn and Herne Bay, but Huw Evans, rental manager at Barfoot & Thompson’s Ponsonby branch, says it is more difficult to fill the one- and two-bedroom properties.

“There are definitely more sharing groups and people looking to squeeze into properties to reduce rent per room – such as couples sharing,” he says. In one morning last week, Evans had four inquiries from groups of four wanting to occupy a three-bedroom property.

Three-bedroom homes priced between $550 and $700 generate the most response when listed, but Evans says they are not fetching premiums achieved for similar properties last spring.

“Everyone is looking for a bargain,” he says. “We recently reduced a rental price by $70 a week, just to get one phone inquiry.”

Evans has a tenant living in a Herne Bay apartment who, for the first time in many years, will be re-fixing his tenancy at a $30 less per week when his new tenancy commences.

“I had to explain to the landlord there would be no way I could achieve that premium price [$430 per week for a one-bedroom Herne Bay apartment reducing to $400] should he vacate and I was to re-let it in today’s market,” Evans says.

Agents from Barfoot offices in Mairangi Bay, Dannemora, Papakura, Milford, Glenfield and Mt Albert all say the market is oversupplied.

The Dannemora office says landlords should be prepared to wait for up to five weeks to fill their property, depending on the rent they are asking, and be prepared to knock $10 to $15 off the asking price.

There is also a large surplus of properties in Glenfield, and tenants are getting more for their money as landlords reduce the rent.

The Papakura office says it is particularly struggling to fill homes in Tuakau. In one instance, a landlord waited three weeks to let a property despite dropping the rent by $40.

Another near-new property which has been empty for more than a month is now advertising a negotiable rent – the landlord will be looking at a rent reduction of $50 per week.

In Mt Albert and surrounding suburbs, landlords can expect to wait up to six weeks to let a property and keep reducing the rent until it is let. The Barfoot office says selective tenants are snapping up the tidy properties first.

Brian Hancock, director of Quinovich Hamilton and president of the Waikato Property Investors’ Association, says it is definitely harder to rent properties in Hamilton than it was six months ago, but he hasn’t noticed a huge reduction in price.

He believes this is due to his company urging all landlords to present properties as immaculately as possible.

“If you’ve got a well-presented property, you tend not to have to drop your rent.”

King, who with Lisa Dudson, has co-written the new edition of Create Wealth: The Complete Guide to Residential Property Investment in New Zealand , says the slumping property market has created thousands of new landlords, and whether they sink or swim will depend on how quickly they learn the skills.

Early this year there was a huge influx of new sales listings on TradeMe, King says, as people tried to quit a slowing market when prices were at their peak, but recent months have shown a spike in new rental listings.

“My take on that is a lot of people have tried to sell their properties but have failed to get the price they expected, and so have decided to rent their place out until the market improves,” says King.

These accidental landlords may have bought another place in a bid to move up the property ladder, or were shifting to another city, or for school zones.

The problem is that many will find the rents they can collect do not come close to paying the expenses of owning a renter, at least a heavily geared one.

That means cash flow will be tight, particularly with interest rates so high, so they need strategies to maximise their cash flow.

Many will not stay the course and will sell out, King said, when hanging on could mean the difference between selling at a profit or a loss.

He picks the market comes back to life in 2011-12, coinciding with the time young KiwiSavers will be able to claim government subsidies on their first homes.

King advises:

• Know the true market rental price for your property and ensure that is what you are receiving. You can do that by keeping an eye on adverts in the papers, testing the market by posing as a tenant, and using the online statistics provided by the Department of Building and Housing. Don’t be afraid to review your rents when the market moves.
• Know the tax deductions you can make, ensure you have the right documentation and follow through the claim. Deductions can include depreciation and expenses like the petrol used in carrying out property inspections, the cost of insurance, repairs and maintenance, land and water rates, and the legal costs in obtaining finance.
• If receiving a wage or salary, and your property is making a tax loss, you can apply for an alternative tax code (Inland Revenue form IR23) to receive tax deductions each pay day rather than waiting till the end of the year.
• Make interest-only repayments on your mortgage. If your rental property is making a loss, this is a way of keeping the short-term costs down.
• Find out if there are extra features your tenants want that you can provide for an increased rental return.
• Establish good management systems so you are as efficient as possible, and keep your property maintained. When you are managing a negatively geared property, every dollar saved is a dollar closer to holding on to your renter.
• Understand your legal duties as a landlord under the Residential Tenancies Act, and study up on what to do in a crisis (such as problem tenants), before a crisis strikes.
• Use a revolving credit account to get through cash-flow shortfalls. Take care and be disciplined, however. These can be a trap for the unwary.
• Mortgage interest costs are your biggest expense, so ensure your loans are structured so the mortgage interest is tax deductible.
• Don’t try to go it alone. There’s strength in numbers, and accidental landlords can find support, information and experience by joining their local property investors’ association. The annual fees can be claimed as a deductible expense.

The national landlord membership and lobby group, the Property Investors Federation, has released a guide which it wants members to show to tenants.

Federation vice-president Andrew King said most members were already following the code.

“There’s nothing to stop members breaking it. We don’t have any powers over them – that’s the job of the Tenancy Tribunal and the courts. If we are aware of them not getting things right, then by keeping them as members we have a better chance of stopping them from getting into trouble.

“The code isn’t to regulate them, it’s to inspire professional and profitable behaviour and keep out of trouble.”

Helen Gatonyi, manager of the Tenants Protection Association in Christchurch, praised the code and said all landlords should adopt it.

“Anything that helps the relationship between landlord and tenant or educates both parties has to be a good thing.”

The rules demand that landlords treat tenants with respect, in a businesslike manner.

“A rental property should be treated as the tenant’s home and regard will be given for the tenant’s peace, comfort and privacy,” the code says.

“Members should be aware of what government assistance may be available to their tenants in relation to their tenancy, and assist them if requested. Dishonesty, deception or misrepresentation shall not be used in any activities involving members’ property business activities.

“When asked to supply a reference for a tenant, members will supply true and accurate information in order to assist the tenant and fellow rental property providers.

“Members will provide the premises in a high state of cleanliness at the start of each tenancy and act promptly to investigate and remedy any reasonable request by a tenant, maintaining the premises in a comfortably liveable standard consistent with the age and character of the premises.

“Members will monitor the rental market and take a responsible approach to setting rental prices by considering market rent levels and any other specific or unique conditions of the property.

The code also bans any discrimination.

“In advertising and tenant selection, members will choose the most appropriate applicant and will not discriminate against anyone on the basis of gender, marital status, religious belief, ethnicity, disability -physical or psychiatric- illness, age, political opinion, employment status, family status, or sexual orientation.”

A tenant’s right to privacy is demanded.

“Credit histories will not be obtained without the prospective tenant’s written authority,” the new rules say.

The code demands community responsibility. “Members shall have regard to the neighbours of their rental properties and will take all reasonable steps available to them to protect neighbours’ peace, comfort and privacy from the member’s tenants.”

FLAT FACTS

• More than 1 million Kiwis rent.
• They are in 464,000 rental properties.
• Auckland weekly rents average $384.

Property Investors Federation vice-president Andrew King says a 25-year mortgage for 90 per cent of the cost of the country’s median-priced house, worth $345,000 last month, would currently cost a new home-buyer $745 a week, including rates, maintenance, insurance and an allowance for other costs.

By contrast, the national median rent last month was only $305 a week.

He will tell an Australasian Housing Institute seminar on affordable rental housing in Waitakere today that the ratio of mortgage costs to rents is higher in New Zealand than in five similar countries.

“Right now the gap is enormous, but it’s always been there because New Zealanders prefer to own their own property rather than rent, so they are always willing to pay a premium rather than renting,” he said yesterday.

“At the moment a first-home buyer could save more than $20,000 a year and rent for, say, three to five years, then they’ll have $60,000 to $100,000 extra to put towards a deposit.

“They can probably also take advantage of KiwiSaver, so there is a real incentive at the moment to rent.”

Like many pundits, Mr King predicts that average rents will rise as people realise that they are better off renting.

But a Crockers Real Estate analysis of tenancy bonds lodged with the Department of Building and Housing suggests that rents are rising only slightly, particularly in Auckland where they were already well above the national average.

The average rent for a three-bedroom house in Auckland rose by 3.8 per cent from $420 a week in July last year to $436 last month, roughly in line with the general inflation rate of 4 per cent. Nationally, the three-bedroom average rose slightly faster, from $320 to $340, or 6.25 per cent. The average jumped by 8.3 per cent in Wellington, but actually fell by 6.7 per cent in Christchurch.

Crockers marketing manager Karen Coleman said it was hard to generalise about whether it was better to rent or buy because everyone’s situation was different. “If someone was totally cashed up, why rent? But if you are going to borrow … ”

Source

Industry experts say even tenants who can afford a deposit and mortgage repayments are taking advantage of market conditions and enjoying a less stressful life.

Andrew King, of the Auckland Property Investors Association, said renting was “extremely good value” at the moment and believed the number of long-term tenants had been rising for at least 18 months.

King said maintenance, rates, and insurance cost landlords up to $10,000 a year, per property after tax – and that was $10,000 a tenant didn’t have to pay.

“Renting is a very cost-effective thing do to,” he said. “It’s not even just the cost of the maintenance, you also don’t have to do it, you can just ring the landlord.”

Tenants also had the freedom that comes with flexibility. They only have to give three weeks’ notice, while a landlord has to give 90 days, or 42 if they are selling. They also have the protection of the Tenancy Tribunal.

King said the doom and gloom surrounding the housing market had seen more rental properties become available, especially in the last month.

Finding properties weren’t selling for the price they wanted, homeowners have been renting them out while the market corrected.

But King said the “slight oversupply” didn’t mean you were likely to get a rental property on the cheap, especially in Auckland. Some landlords, facing rising costs, were putting up rents by as much as 15 per cent, forcing some tenants to move.

Property investment consultant Tanya Kwasza, of Auckland-based Catalyst 2, has been a long-term tenant and said it could be a better bet than saving for a deposit.

After returning to New Zealand from overseas, she invested her savings in other properties while still renting, holding off buying a home for herself until she was in her 40s.

“I was able to rent where I wanted to live, in an area I couldn’t have otherwise afforded to live in, while also getting tax relief from my other properties and building up my portfolio.”

Her business partner, Nikki Connors, said the idea that a freehold home provided financial security for later in life might be untrue.

“We have a lot of people who have paid off their mortgage coming to us at retirement age and they’re officially on the New Zealand poverty line, the Government pension,” said Connors.

“They face having to sell and downsize, or take out a reverse mortgage on the very house they have spent all those years paying off just to retain their lifestyle.”

Connors knew an entrepreneur with several businesses who was renting a $4 million home off Auckland’s pricey Paratai Drive. Although his rent was high, it was less costly than a $2 million mortgage and freed up funds to invest in his businesses and rental properties.

“It’s something I have considered myself,” said Connors. “I don’t know why I own my own home when I could be renting a fabulous place. That [mortgage] money could be topping up two or three rental properties.”

Tradition isn’t the only thing dictating whether a person buys or rents.

John Grant, director of New Zealand business for GE Money Home Lending, said whether or not you aspired to owning a home was “a lifestyle choice these days”.

“The attitude towards home ownership isn’t the same for generations X and Y as it was in the baby boomers’ time,” said Grant.

But he said if you wanted to buy a home it was better to get on the ladder as soon as possible. “The longer you leave it, the harder it will be.”

It was also important to be a highly-disciplined saver if you wanted to rent long-term and invest in shares rather than property.

“Property tends to be a lifetime asset you would be reluctant to sell just so you can go on a big holiday. But it’s far easier to sell a few shares off.”

Financial writer Mary Holm told the Herald on Sunday renters might be smart to sit on the fence “for a while, if not forever” as long as they saved in other ways. On the flipside, those who wanted their own home shouldn’t let market worries affect their decision.

HAPPY TO BE MORTGAGE-FREE

Rachel Rae is a renter – and she’s happy to stay that way.

The Auckland web developer has lived in rented accommodation for 15 years. Despite having a good income and the ability to get a mortgage, the thought of never owning her own home doesn’t bother her.

The single 36-year-old shares a flat with her landlord in Herne Bay, Auckland. Rae loves to travel and she is disciplined enough to save a good chunk of her income for other investments.

“I prefer to have the availability of more savings,” she said.

“If you own your own home, you can get in the situation where you have to come up with quite a lot of money in a short amount of time.

“I’d rather make other investments that don’t require me to come up with $5-10,000 in maintenance every year.”

Rae said she normally allowed her savings account to grow to between $10,000 and $15,000 before investing the money through her bank. “It’s safe and easy, and the money can be made available if it’s really needed.”

She’s lived in eight rental properties over 15 years and has never had a bad landlord.

In one place, the landlord decided to raise the rent by more than she thought reasonable, so she moved.

Another time the house she was living in was sold so she moved.

“If you have to move, you have to move… the only major disadvantage [of renting] for me is not having the ability to put in gardens.”

RENTING VERSUS BUYING

RENTING – THE PROS:

• You may get a higher return on invested money.
• Greater flexibility with savings.
• Better savings diversification.
• Less responsibility.
• Can move easily and cheaply.
• It might be easier to live in the suburb you want.
• No maintenance worries.

RENTING – THE CONS:

• Can be booted out.
• No say over choice of decoration.
• More discipline needed in order to save money.
• Exposed to rent increases.

BUYING – THE PROS:

• Accumulate equity in property.
• Future retirement accommodation.
• Easier to borrow for business.
• You decide when you’ll leave.
• Decorate and garden as you please.
• Pride of ownership.
• Security.
• Freedom to have pets.

BUYING – THE CONS

• Good credit rating needed.
• Home maintenance.
• More difficult and expensive to move.
• Inflexible savings.

Source: Get Rich Slow by finance writer Mary Holm

This adds to the grim outlook portrayed in property mortgage insurer PMI’s mid-year report, released on Thursday, and Quotable Value’s monthly report, which is out tomorrow.

QV’s Blue Hancock said house prices were declining on a month-to-month basis, although annual figures had not quite caught up.

The PMI report said New Zealand house sales had hit a 10-year low and house prices could drop as much as 10 per cent over the coming year.

But King said more activity and good bargains were coming.

“If people have to sell because they have over-borrowed, or have invested but didn’t know what they were doing, you could see prices fall.”

Hancock said QV had noticed vendors pulling away from tender and auctions in recent months, and listing homes with words such as “desperate to sell” and “mortgagee sale”, attracting bargain-hunters and low offers.

“The advice is: be very careful on how you instruct your agent to market the property,” he said.

“It might not be in your best interest to put in ‘all offers accepted’ or ‘mortgagee sale’ or ‘vendor desperate to sell’ phrases.”

Martin Evans, president of the Property Investors’ Federation, said a greater number of lower-priced properties would come on the market about September or October when a lot of two-year mortgages came up for renewal.

People who bought properties in the past two years that were not returning a high-enough yield would soon be looking to sell, he said.

On the other hand, Hancock said a cut in interest rates and the official cash rate could come sooner than expected and it that would be interesting to see what happened when mortgages were renewed in September.

“If the interest rate reduces we may see a reinvigoration of what’s happening in the market place or a stabilising of it.”

Prices also depend on migration and world events, Hancock said.

Despite investment yields being down, the ANZ’s annual Property Investors Survey, released last week, showed most were still optimistic about the property market.

ANZ chief economist Cameron Bagrie said: “You look at what their expectations are and I do think they are a bit rich. They are looking for a pretty quick turnaround and that’s a bit of a stretch, given the dynamics the property market faces at the moment.”

One-third of investors surveyed predicted prices would fall over the coming year.

“The reality has sunk in, but people seem to think the market’s going to bounce back in three, four or five years,” said Bagrie. “People should be a little more realistic and circumspect.”

I looked up the number of properties advertised on Trade Me for each city and compared this to the local population, giving an indication of local usage. The results were interesting.

Overall, .2% was the median result for the 16 Cities covered in the study. It appears that the major Cities are the biggest uses of the internet to promote rental properties to tenants. The exception to this was Dunedin City, who had 201 adverts for a population of 119,600, making their result .17 or just under the median.

Having Dunedin being the lowest was consistent with a North/South difference in usage of Trade Me. As can be seen from the Pie Chart above, taking out the larger cities, Trade Me usage fell the further South you went.

It would be interesting to know if Landlords in the South are not high internet users or whether their prospective tenants don’t use the internet to find accommodation.

Trade Me has markedly increased it’s prices for promoting properties to let this year, now charging $49 instead of $19.95. This makes it a much larger percentage of weekly rental income for Southern Cities compared to Northern. Auckland’s average rental price is $413 compared to Invercargill’s $186. This makes the cost of a Trade Me advert 12% of a weekly income compared to 27% for Invercargill. It may simply be more cost effective to advertise in the Southland Times or Southland Express. The latter only charges $6.55 for a centimeter classified advert.

It may be that the canny Southlanders know the cost effectiveness of targeted promotion and how their local tenants find accommodation.

King, former president of the Auckland Property Investors Association, is yet to fully launch the business, Andrew King Property Management Broking, on to the world.

But he believes that, just as mortgage brokers aim to find the best home loan for clients, there’s a place for professionals to introduce residential property investors to the best property managers.

And as with mortgage brokers, the service is free.

Users of the service will pay no fees, but the property managers to which King refers clients will pay a commission in exactly the same way mortgage brokers pocket commissions from the likes of the banks and non-bank lenders. King is coy on the level of commission, but says it won’t add anything.

Commissions will be level from all property managers so there will be no bias in his recommendations, he says.

King says there’s a place for the service because so many property managers aren’t doing a good job, and that is costing landlords money.

Property managers are subjected to a 60-question grilling which takes about two hours, says King. He then interviews a random sample of 10-15 of the property manager’s clients.

Additional benefits will be that King will monitor the continuing service provided by the managers he recommends , and will act as a mediator should the client have complaints about the way their property is being handled.

He hopes the service, should it catch on, will play a part in raising standards by helping people ditch their old shonky managers. “There are quite a lot of cowboys out there,” King says. “If I can make it easier for people to move to a good property manager, it could have a positive effect on the industry.”

King intends to publicise his business in the new year. An online service he is developing will allow investors anywhere to plug in the details of their rental properties to get an estimate of whether they are getting enough rent.

“I don’t think many investors charge high enough rents.”

But he, like other investors and estate agents, warns against the temptation to take a punt, borrow heavily and invest in a clutch of Auckland apartments within walking distance of the Viaduct.

“There’s a lot of talk among property investors at the moment and they’re quite excited about it,” King said. “They think it [winning the America's Cup] will increase property values.”

But a decision to invest in inner-city property needed to be put in context, he said.

“It is just an event over three or four months. To base an entire investment decision around an event which is so short term, I think, would be a little unwise.”

Property investors say that there will be a great deal of hype surrounding the America’s Cup and Rugby World Cup, and people need to be very careful not to get carried away.

Already real estate agents are catching Cup fever. Ray White estate agent Zoan Jovanovic is advertising a $799,000 Mairangi Bay house under the heading “America’s Cup Bonanza”. He invites househunters to relax on the deck, which has views over the Hauraki Gulf, and watch the “potential America’s Cup … ”

Property experts say people who own apartments available for rent near the cup base will do extremely well for several months, before, during and just after the Cup challenge.

But they will not be able to sustain high rents once the event is over, they say. Real estate agents warn of people who had got “burned” after the last America’s Cup.

However the owners of large three- to four-bedroom apartments – difficult to find in the downtown area – and large family homes near the cup base will do well, they say. Syndicate families would rent a property for between 12 months and three years.

Auckland apartment investor Ed Meilie said those considering investing in an apartment should buy good quality. During the last America’s Cup, Meilie rented his apartments to various yacht syndicate members for between 12 and 18 months.

While Meilie’s rents rose by between 20 per cent and 30 per cent during the build-up to the America’s Cup, they were nothing like the 100 per cent claimed by some.

“The syndicates aren’t stupid. When they rent an apartment they’re not going to pay double the price, especially if they’re eight months early,” he said.

Meilie, who has invested in apartments for the past 12 years, always advises people to buy good quality in whatever category – be it a studio or three-bedroom apartment. Investors who bought cheap apartments – the tiny, two-bedroom 40sq m student apartment – would not benefit.

“Stay a mile away from them.”

Good apartments were still easy to rent after the Cup. The international market became more aware of Auckland so the owners of good apartments would benefit.

Real estate agents and investors agreed that rental accommodation would be in high demand during the main America’s Cup months. Demand would outstrip supply, which meant landlords and apartment owners would be able to charge whatever they could get away with.

Gail Vietri, principal of Quinovic (Ponsonby), a residential property management company, said good apartments for rent were already in short supply over the Christmas summer period and any demand from America’s Cup syndicates would drive rental prices up further.

Rental boom

It’s early days, but should the wind shifts and Lady Luck go Team NZ’s way this week, Auckland could be hosting the 33rd America’s Cup four years from now.

Aucklanders with homes within easy driving distance of Viaduct Harbour could, as they did during the 2000 and 2003 Cup challenges, make a killing by renting out their properties. Rents doubled or even trebled during the lead up to the cup.

Letting agents say the yachting syndicates will want to rent large, good quality, fully furnished homes. Three or more bedrooms will be essential, both for families and for eight to 10 syndicate staff to share one home. The houses need to be near good schools, and preschools, and syndicate families will want to know if there is room for their children in those facilities. They will favour areas that are quiet and safe.

The homes will need to be within either walking distance or easy driving distance of downtown. Homes in St Marys Bay, Herne Bay, Freemans Bay and Ponsonby will be at a premium. Suburbs such as Grey Lynn and Pt Chevalier will also be popular.

Along the waterfront, homes in Parnell, Orakei, Mission Bay and Kohimarama will be in demand.

Those renting will expect Sky TV, a good internet connection and all maintenance, such as lawns, gardens and swimming pools, to be taken care of.

The rents for good homes could easily double, agents say. For instance a four-bedroom Orakei home, which normally rents for $1300 a week, could command $3000 a week if the America’s Cup comes back to Auckland.

Sailors renting one-bedroom apartments will expect the latest technology, including digital TV and good internet access. They will want to be within walking or biking distance of the base.

The apartment will need to be quiet and dark so that sleep is not interrupted.

Viaduct living

Good apartments in popular buildings such as The Point at Auckland’s Viaduct, close to where the action will be if Team New Zealand defends the Cup in 2011, don’t often change ownership.

Real estate agents say owners love living at the Viaduct and are reluctant to move. The good penthouses, some worth between $2 million and $3 million, rarely change hands.

But there are still plenty of apartments available to buy. A studio or one-bedroom apartment can be bought for $280,000 in Latitude and in North at the new Lighter Quay.

Agents say property prices might increase from 5-10 per cent leading up to the America’s Cup.

Under the eligibility rules, outlined in Treasury post-Budget notes, people who get the housing grants will be forced to buy a house with a value in the lowest 25% of homes in their town, area or city.

In Auckland City or the North Shore, the Treasury notes say, that would be a home costing $400,000 or less, while in the Queenstown Lakes district, it would be a home worth $300,000 or less. The measure is designed to stop people in cheaper areas using KiwiSaver to buy bigger homes than the government thinks is reasonable.

Under the KiwiSaver scheme, to be introduced on July 1, there will be a first home ownership grant of $1000 a year for each year of saving. That is capped at $5000 per person, so a couple could get $10,000.

The first home deposit subsidies will be paid out in 2010 because only KiwiSavers who have been saving at least 4 per cent of their gross salary into KiwiSaver for three years will be eligible.

For households and families with three or more KiwiSavers clubbing together to buy, the income cap will be $140,000. The levels would be reviewed in 2009, and the property price caps would be reviewed annually.

Property investor Andrew King said the stipulation that homes be at the bottom end of the market appeared to be forcing relatively well-earning couples to downsize their aspirations with the intention of leaving them enough left over to save into KiwiSaver.

“I guess they are trying to reduce the quality of the houses we live in,” said King.

“They feel the homes we live in are too grand and that we spend too much money buying them.”

A spokesman for Finance Minister Michael Cullen said the scheme would provide targeted assistance to help those who struggled most to buy their first home. “This is a helping hand, getting them into their first home, but not necessarily the most desirable home in their life.”

On top of the government handout to buy a first home, he said tax breaks and employer contributions under the KiwiSaver scheme meant people will also have more money to save for a house. Those who failed to meet the subsidy’s criteria could still draw on their KiwiSaver money to buy a home.

To get the housing grant, a KiwiSaver must intend to live in the house they buy for six months or more; this is designed to stop people buying an investment property in one area, pushing up local house prices, and renting in another.

Those who flout the rules will have to repay the money and could be penalised.

The $100,000 cap indicates just how unaffordable the housing market is.

Statistics New Zealand’s June 2006 income data showed the average 15-24-year-old earned just $24,180 before tax. The average 25-34-year-old earned $34,684 and the average 35-44-year-old earned $37,856.

But mortgage broker Adam Parore said there was something demeaning about making middle-income New Zealanders go cap in hand to the government for money.

“I think subsidies have their place in every society, but I don’t believe it’s something families with combined incomes of $100,000 to $140,000 need.

“Michael Cullen’s heart’s in the right place, but … It would be a whole lot easier if he’d just given them a tax cut and let them buy their home from their own money.”

Parore says the three to five year waiting period for the grant will do nothing for those locked out of the market now.

“The nature of the property market is working against the scheme. In five years prices will have moved even further away from first home buyers and that $5000 is going to be worth a lot less.”

Parore did not think the government was trying to force people into smaller houses by saying they had to buy cheaper homes.

“Even if an Auckland couple earning $99,999 got a $10,000 subsidy, had saved $15,000 for themselves and had $10,000 gifted by their parents, they’d still only be realistically able to borrow $400,000 more – making for a buying price of $435,000, which is not a lot higher than the limit the government has set.”

Even if people are ineligible for the grants, all first home buyers will be able to withdraw their own savings, and part of their employers’ contributions, from their KiwiSaver account to help pay the deposit on their first home after three years of saving, though they cannot touch the $1000 the government put in, or its weekly contributions. All members of KiwiSaver, including new home buyers, can channel half their contributions towards paying off their mortgage.