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The Increase To Building Costs Is Going To Affect Us All

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Contributor:
Brian Dalley
Brian Dalley

Last week I put the following question to a Master Builder that we work with that specialises in building residential investment properties in Hamilton.

What impact to you think the increase to GST will have on the building industry?

This is what John had to say:

We have been eagerly awaiting the budget for many months now and its arrival comes with a bit of a Christmas Day like disappointment. Yes, it’s pretty much what we were expecting and yes, it could have been worse, but it was still a cheap shot at those New Zealander’s who are trying to be proactive about their retirement.

Besides the negative impact on property investors, I believe the budget will be good for the overall economy over the coming years. New Zealand has a high level of debt and it’s still increasing. The government (the taxpayer) are borrowing $220 million per week at present to fund our commitments thanks in large part to the outgoing governments over spending, so this clearly needs to be brought under control.

So what is the budget’s impact on the average investor?

While we don’t purport to be the property finance experts, our numbers point towards the average investor who owns one residential investment property having to come up with another $15-$25 per week to fund their investment.

Is this going to stop people buying residential investment property? Hardly.

One thing we do know for certain is that the cost of new houses will rise, in part due to the GST increase, but also thanks to the ever increasing new building

requirements. Some of the recent new requirements include:

- Storm water detention tanks. The cost of this alone for 9 townhouses on Greensboro Street is just over $20,000. These tanks do not provide any value to the buyer. We need to install them so the council don’t need to upgrade their infrastructure, we still have to pay the same development contributions however.

- New acoustic requirements. Near busy roads we have to build with double thickness double glazing, Noiseline GIB (over the standard GIB) and vents to bring air inside without having to open windows.

- Datum. These now need to be verified by the surveyors at the cost of approx $2000 per development site.

- Double glazing, bought in as a requirement last year and no doubt we will face further cost increases on the next development. We already know that timber is going up in price by 20% this year due to increased demand from China.

Here is how the GST increase from 12.5% to 15% will affect the price of town houses. As a building/development company we are required to return GST on all sales. Currently when we sell a $330,000 townhouses we pay the IRD $36,666.67. When GST increases to 15% we will have to pay the IRD $43,043.48 - an increase in GST (read tax) of $6,376.81.

When we get our next development valued this increase will be reflected in the

valuation/sale price.

All of this aside, the economy is growing and as the economy grows inflation continues. Add to this the inflationary effects of the money printing that the

reserve banks have been doing around the world and an increase in inflation is a given.

As inflation increases so too does the cost of new houses, which carries up the cost of existing homes, and so rents go up too. So, as long as you are buying for the long term (10years+) then now is a good a time to buy a house as any.

In fact I have gone unconditional on a new development site next to the University in Hamilton, so at least I’m putting my money where my mouth is.

Thanks John, reading between the lines, anyone contemplating investing in a rental could well be advised to check out Hamilton sooner than later.

Brian Dalley is a former NZMBA Mortgage Broker, Property Investor, and Real Estate Agent with over 15 years experience in the industry.   You can read more of his and other professional’s views and opinions on his website www.propertyprofit.co.nz.
 

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