2023: The Year of Recession (and what it means for property investors)

I’d been one of the final few holding out hope that the Reserve Bank (RBNZ) might go a bit easier on us – relatively speaking, that is – with its last OCR announcement of 2022.

That it would have started to realise the extent of the damage done by previous rate hikes and want to wait it out before making further moves that could risk plunging New Zealand into a recession.

Instead, November’s announcement saw the RBNZ hit us with a record triple OCR hike, the promise of more to come, and the acknowledgement that it’s now deliberately tipping the country into recession in order to try and bring inflation under control.

And so, our fate has been sealed – and 2023 is set to become The Year of Recession.

So, with that on the cards, what do property investors need to be thinking about, heading into this year?

1. First and foremost, cashflow is king.

This old adage always holds true – but especially in an environment where interest rates are on the rise, servicing’s getting tougher to pass, you’re losing tax deductibility on rental properties, and costs are going up.

Throw a recession into the mix, too, and the end result is that it’s just going to be much harder to borrow moving forward.

So, for property investors, this year is probably about finding ways to improve your cashflow position.

First up, take a close look at your portfolio, and whether it’s still performing how you need it to. In the past, you could hold just about anything and make money, but now you’ve got to be a lot more selective about the properties you hold.

Chasing capital gains isn’t a winning strategy right now, so it might be time to reconsider the underlying properties (or types of property) you’re investing in, in favour of something that’s going to give a better yield.

It could also mean choosing to sell one or more of your properties – although selling in this market is a tough gig and will require a bit of a mindset shift if you’ve built your portfolio with the intention of holding onto everything forever.

2. There will be opportunities in the market – and you might not need to borrow more to tap into them.

Falling house prices, coupled with vendors who are more willing to meet the market, will mean plenty of opportunity this year for anyone in a position to make the most of it.

But with banks getting increasingly conservative, it’s not going to be that easy to borrow more money to make it happen. You may need to get creative.

As an example, a client of mine is going through the process of buying a property for $1million (probably about $200,000 or $300,000 less than it’s worth), which will generate $1100 in rental income a week.

At the same time they’re selling a property for $1million, which had been bringing in $650 a week in rental income.

They’re buying well, so even if they take a hit on the sale, they should still come out on top.

But more importantly, just by rejigging their portfolio – and without needing to borrow any more – they’ve almost doubled their rental income, and significantly improved their cashflow.

3. The end of the year should start to bring relief on a few different fronts.

This year’s obviously an election year, and it’s looking like it’s National’s to lose.

If National is elected, and they follow through with scrapping the removal of tax deductibility, that’s going to bring some much-needed relief – although I don’t think it’ll have much payoff in terms of our housing market recovery.

And then there’s the fact that interest rates won’t stay high forever. When the recession becomes obvious, and if it’s worse than the market has anticipated, mortgage rates will start to ease.

Finally, immigration is going to mop up any surplus housing stock fairly quickly. At the time of writing, I've just put a house I had been trying to sell back into the rental pool and had 12 applicants within 24 hours - so there's already real demand, which is only going to grow.

The opinions expressed in this article should not be taken as financial advice, or a recommendation of any financial product. Squirrel shall not be liable or responsible for any information, omissions, or errors present. Any commentary provided are the personal views of the author and are not necessarily representative of the views and opinions of Squirrel. We recommend seeking professional investment and/or mortgage advice before taking any action.

To view our disclosure statements and other legal information, please visit our Legal Agreements page here.