At the current time, however, the market has slowed mainly because of firm interest rates. Exceptions in Christchurch have been the strong interest in town houses, the conversion of inner city buildings to residential units and in-fill subdivision. However, there are now signs that prices have stabilised. Scarcity of suitable land for further development has also raised land prices and with it the prices of freehold residences. After meeting outgoings, many residential properties return less than four percent net to the investor.
Rental levels have limits because of restricted personal incomes.
Unlike the commercial sector tenants cannot offset the cost of renting accommodation against their taxable income. Capital gain now that inflation is under control is minor. Although the Housing Department accepts bonds which it holds for the landlord on behalf of the tenant, there is a cost to the landlord in ensuring that the tenants meet regular rental payments and retain the high condition of the property. Because home buyers have high opportunity costs associated with their investment this adversely affects the market return that passive investors can achieve. There is no capital gains tax on the sale of housing properties.