Positive vs Negative Gearing in the Christchurch Property Market

Gearing is the relationship between your rental income and your borrowing costs on an investment property. Understanding whether a property will be positively or negatively geared - and the implications of each - is essential before purchasing.

What Positively Geared Means

A positively geared property generates more rental income than it costs in interest and operating expenses. After all costs, money flows into your pocket each week. Positive gearing gives you immediate cashflow and reduces the financial stress of holding an investment property. In Christchurch in 2026, achieving genuine positive gearing (after all costs) on principal and interest lending is difficult but not impossible. The suburbs most likely to produce positive or near-positive cashflow at current prices and mortgage rates are Aranui, Phillipstown, Hornby, Islington, and similar high-yield eastern and western fringe suburbs. At a 5.5% gross yield, a property purchased at the right price on interest-only lending at 5% may produce a small weekly cashflow surplus before tax, though operating costs will often erode this to neutral or slightly negative in practice.

What Negatively Geared Means

A negatively geared property costs more in interest and expenses than it generates in rent. The shortfall comes out of your other income. Negative gearing is the norm for most Christchurch investment properties at current prices and mortgage rates - particularly properties in balanced or premium suburbs. The rationale for accepting negative gearing is that capital growth over time more than compensates for the accumulated cashflow deficit. A property bought for $700,000 that grows at 5% per year is worth approximately $1.14 million after 10 years - a capital gain of $440,000. The cumulative cashflow deficit over 10 years at $100 per week is $52,000. The net position is strongly positive over the long term, but requires ongoing cashflow support from other income sources in the interim.

How Interest Deductibility Changes the Equation

The restoration of 100% mortgage interest deductibility from April 2025 has significantly improved the effective gearing position of all Canterbury investment properties. Previously, investors who could not deduct interest paid tax on a larger slice of income than their actual cashflow position warranted. Now, the full interest cost reduces taxable income, meaning the government effectively subsidises a portion of the holding cost through tax savings. For a negatively geared property, the tax saving reduces the real cost of the cashflow shortfall. For a positively geared property, interest deductibility reduces the taxable surplus.

Stress Testing Your Gearing Position

Before purchasing any investment property in Canterbury, stress test the gearing position at mortgage rates 1.5-2% above current levels. ANZ forecasts the 1-year mortgage rate reaching 5.2% by December 2026. At 6.0%, a property that is neutral at 5.0% could be meaningfully negatively geared, requiring additional cashflow support. Make sure you can sustain the property through a rate environment 1.5-2% higher than today without it creating genuine financial hardship.

For general information only - not financial or investment advice. Always consult a qualified financial adviser and mortgage adviser before purchasing.