Over the last six months or so, I have been saying that the New Zealand property market is likely to be near it’s peak and that investors should not expect any large capital gains to help them buy more property.
The fact that the market has cycles, and this includes downsides, is not something to be scared of or worried about. It is a normal part of property investment life and may simply call for a change in strategy. However over the last few weeks there has been some debate over whether the market is going to level off or crash.
Olly Newland is an experienced investor who has suggested that the bubble may be about to burst. You can hear his views in person at the next Auckland Property Investors Association meeting on July 13th as he is the guest speaker (phone 379 9692 for more details if you’re not already a member).
Other commentators with a vested interest in diverting money away from property, more towards the sharemarket, have also started to become more vocal on down playing the property market.
These same people did precisely the same thing from 1998 to 2001, when property was last at a flat spot, so it is hardly surprising that they will start to do the same thing now. Are they right?
I have some clients who started investing in 1998 as the property market was coming off its peak growth for the preceding four years. This was a gutsy thing to do as practically everyone was advising people not to invest in property. Some of the Financial Advisors were telling people to sell their homes and rent so they could invest in the share market and get a better return. Those who invested in property on their own terms, while the market did practically nothing for four years, have reaped the benefits over the past two.
Going on current information I cannot see the market crashing in the near future. However, the previously positive factors are starting to look negative. The main factors for a cap to the house price growth that we have seen over the past few years are the affordability of housing, a reduction in immigration and an increase in new property building. However immigration is still increasing (just at a slower rate) and interest rates are not expected to get anywhere near double figures. Also the cost of building is going up which tends to make existing houses look like better value. With an election next year and a fiscal surplus, there could also be a lot of money floating around which may stimulate the market.
Affordability is a big issue though, and taking everything into consideration you would have to say that the market is likely to be flat for some considerable time.
Investors should take this on board and think beyond five years, just as other successful investors did in 1998. However a downturn in the housing market, increasing interest rates and lower rental yields are going to make it trickier to invest.
If you would like have your personal situation examined and advice on how to make the best of your situation through property over the next seven to ten years, then call me about my “Right Start” package for an all-up price of just $250.
“Right Start” starts with a client questionnaire to complete, which enables me to analyse your current situation through a custom designed spreadsheet. We meet for a personal consultation to analyse your goals and develop appropriate strategies for you to consider. You will receive a free copy of the situation analysis that you can use to update your personal situation as you progress. You also receive a Property Planning Template, including an up-to-date market assessment, to get you started in writing your own personal property plan.
Discussing your personal circumstances and options, then writing down exactly what you are going to do gives you confidence and means you are far more likely to achieve what you set out to accomplish. You will avoid looking at property deals in isolation and start to consider how each deal will take you towards your goal.
So when you start to hear and read about how property is not doing well, consider that we have been here before. With a better understanding of the property cycle and an individual plan for where you are going, it is easier to take a long term view of the market and succeed.
Andrew King
