NZ Property “DOOM AND GLOOM?

If the market is retracting a little in New Zealand, thats great news it will mean more opportunity for investors. It is a little harder to buy well but even in cities like Christchurch you can still buy at 8-9% and of does Don can talk about Invercargill.

A slowing in the economy should create more buying opportunities. People will always need a place to live.

Nigel Kibel

http://www.propertyknowhow.com.au

Australian and New Zealand The United States Property Researcher and education
One Day property investment research workshop The United States. Please register your interest

Interesting how you can read the article and get doom and gloom and I read “8 per cent ahead of a year ago”…..
….”Listings for the rest of the North Island and the South Island were also on the rise, with the number of properties for sale in Christchurch in February up 63 per cent. “

Recent capital gains figures say that Taranaki has gone up 29 percent so far this YEAR. That is (almost) more in 3 months than Manly did in a whole year which was the number one capital gains suburb in Australia at the height of the boom! I think I remember reading that NZ has gone up 14 percent this year so far. Don’t quote me but I am sure I read that!

With the disclaimer that I am not an economics whiz and I’ve sort of picked this up as a property investor, by gaining a better understanding of how everything links with everything else, here’s my thoughts/explanation. If you get a weaker dollar, half of NZ cries HURRAH! i.e. farmers, exports, and so on. Foreign investment. Then you have a period where everyone does well (in NZ) and exports prosper and everyone has lots of money. Fast forward to Taumarunui mid 2003, where you couldn’t get a tradie because (in my project manager’s words who is a local and does all the plans, drafting, resource consents etc) ” Farming has been doing really well and people have some money, so there’s 20 years pent-up demand for new kitchens!!!” NZ dollar goes up…people spend…invest…do up….prices go up…unemployment is at a 19 year low…NZ is economically growing at , what, 2.5 percent a year, and some regions at twice this rate. NZ is hot baby! Interest rates were low. Suddenly the dollar starts zooming up and capital gains etc and WHOA!!! suddenly the government starts worrying that if it goes up tooooo much tooooo fast, then exports will suffer, etc etc so they (in their infinite wisdom) do what they can to ‘control inflation’.
First thing is that they stop the number of people who they let into the country. i.e. slow immigration. This does not mean that suddenly nobody wants to come to NZ any more, on the contrary, there are queues around the block to get it, I’ve known a few Germans etc who have tried, and it’s not easy! High immigration causes growth/demand/inflation as more people put more demands on housing, services etc, so the Government cuts this back. Now if you don’t have an understanding of this basic economics stuff you read an article that says ‘Immigration at 6 year low’ and you might think ‘doom and gloom! Nz is losing favour!’ but not at all, it’s just a way of trying to stop the growth going toooo fast because while half the people want the NZ dollar to go up up up up up and never stop, ditto property investors who already own, half the people don’t want it to (i.e. exporters, people who haven’t bought yet and are ttrying to buy homes on an average income, etc.)

So…. then the government does a bit more because by then a tsunami of ‘NZ is hot, let’s buy up large!’ feeling is happening and so they hike interest rates, a little, a little more, a little more, trying to stop the crazyness, and the banks have to do it too, until you get 8 percent and TALK of doom and gloom.

now the other thing to remember is though investors feel that they are oh so important, sophicticated and they probably believe that they ‘are’ the market because they buy and sell more than the average person, the truth remains that the housing market is dominated 80 PERCENT or more, by homeowners!!!!!!!!!!!!
Who don’t really think like investors, they are emotional buyers, who buy the best house they can afford, when they can afford it. Sure, rental accom is a growing trend in NZ (that should be an upside enough to buy there!!!)….but anyway I digress, so you get to this point where property prices are high and rents although they have risen heaps, haven’t risen as fast as prices, i.e. yields are down.

OK, so let’s say that prices might ‘slow’ in growth for a while. (everyone knows that property trends upwards and always has done, despite war/famine/recession/stock market crashes) since property prices were recorded!!!! Ask the Queen of England if you don’t believe me!!!! (hahah)

then what’s going to happen? Well rents will rise, this is a predictable phase of the cycle. Then our cashflow yields will be stupendous! With all that surplus, what are you gonna do, but what a good time to subdivide, renovate, build minor dwellings, add value in general, to refinance and keep buying (because flat markets with rising yields are The Perfecto Time To Buy!!!! – you are counter-cyclical, remember! -)

And remember Dolf De Roos who bought his first cashflow positive property when interest rates were a WHopping 27 percent!!!!! And the rental return was way more than that!!!! Because he started in a part of the cycle when returns were through the roof. Basically NZ is not going to go away, it’s a country of people most of whom are going about their business, going to work, going home, renting houses, doing up their bathrooms, buying a home, moving to a better home, selling their home and buying a unit, or moving out of
a unit and buying a home. Anyway… so on we go buying more great deals. My favourites are ‘under value when you buy’, add value, high yields, and just pretty cute tidy nothing to do buy and holds, I have all of the above in my portfolio and I’m still buying everything I can.

cheers!-
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