By Olly Newland
The new year has started with a bang (or shall we say a whimper? It depends on your viewpoint) when it comes to property and investment.
A whole lot of new information has been released, some of which paints a confusing picture of what is happening in the market.
Some say that the market is about to nosedive (they have been saying that for over two years now), while others say there will be another boom sooner rather than later. I called 'a flat market' 2 years ago ... and that has been more or less correct up until now.
But as the facts emerge and the reality on the ground is experienced, I think we have turned the corner.
I am not predicting a boom in house prices. But I am predicting a crisis in housing in general, and rents in particular.
This being election year the "for and against" factions will dig in ... so we should avoid taking extreme positions.
Housing is a popular subject for politicians to fight over, especially when an election is close, we will likely see much more finger-pointing on the subject.
This is par for the course, but even so, there is a problem and it is getting worse. No amount of window dressing or political hot air will change the facts of the matter.
Nevertheless there are facts about the current market that cannot be overlooked.
Building Consents Lowest Since Records Began
Building consent figures fell sharply in December, with one economist saying they probably cannot get any worse. Figures from Statistics New Zealand today show the 994 new dwellings, including apartments, authorised in December were the lowest in a December month since the series started in 1965. The number of consents was 27 per cent down from a year earlier, while the 909 dwelling units excluding apartments was down 28 per cent and the 85 new apartments was 8.6 per cent lower.
This is a situation that cannot continue. At this rate, there would be NO building industry in six months -- which is nonsense of course, so some sort of mild recovery is likely. I am certain it will not be enough, however, given the current climate.
What this news is really saying, is that there will be a growing shortage of affordable housing -- a shortage which can only get worse in the months ahead, and which will be very difficult to catch up with.
And remember, building consents are just that. They do not all translate automatically into houses. Indeed it will be lucky if half the consents actually end up as ready-to-live-in houses - so the growing shortage will be even worse than may first appear.
In my view, this can only lead to one thing - a rental shortage and the consequential rise in rents. We are seeing that already. I said this would happen last year in my article "Rents sure to Rise" April 2010
The latest statistics make interesting reading indeed. What they show is there has been a huge surge in people choosing to rent. There will be serious consequences if this trends continues - which I am sure it will. Many have come to realise that renting is still far cheaper than owning especially while capital growth remains so elusive.
Rents Rising - the Facts
Of all the blunders done by the 'powers that be' (the 'gummint') the three most egregious have been:
1. The constant harping by the politicians and the Reserve Bank over the last two years that property prices had 'gone too high' and had to be curbed.
New Zealand is a small country, and when those in power speak, we listen. In much larger economies, the rantings of politicians are often ignored in the hustle and bustle of business. Not so here in little old New Zealand.
2. The attack by the government on residential property investors (landlords) in last year's Budget. The Minister of Finance positively squeaked with pleasure when he announced that depreciation would be removed as a legitimate tax deduction. While it is true that other potential 'nasties' such as ring fencing losses, land tax and capital gains tax were taken off the table, what was left has pushed a fragile market into a Zombie pattern ... which does no one any good.
As the effects of this move became clearer the realisation dawned that this was indeed a colossal blunder because of the exacerbating flow on effect. The property market is sensitive the best of times. Legislative mistakes or unexpected events can produce serious unintended consequences for years ahead.
Indeed the Government has partially recognised the blunder it has made by quietly reinstating much of the depreciation allowances for commercial property. This was due to the fact that the large public property owning trusts were going show massive tax losses - which would have cost the Government dearly in lost revenue.
3. The third blunder was the raising of interest rates by the Reserve Bank in the middle of last year which immediately flowed through to mortgage rates at the time - again slowing the market further than was necessary.
This sent a completely wrong message to the market and the "second dip" recession and the continuing weak overall economy can be at least partially ascribed to this ill-timed move. I bet Dr Bollard would love to reduce rates right now, but that would be a political admission that the double dip recession is a fact - something which the Government would love to gloss over if it can as it is not a good look in election year.
It should also be noted that the flood of shoe-box apartments built during the boom in the cities also dampened the rental market. These are almost all full now so this becomes another source of pressure onto the remaining rental market.
As a consequence of all this we now we see rents rising, and rising quickly after years of stagnation. While there are some capital gains to be made investors were content to leave rents alone but not now with rising costs and slow capital growth.
Let me hasten to add that this is currently an Auckland problem - but it could easily ripple through other main centres in the times ahead.
Today Auckland. Tomorrow the rest of the country.
Auckland rentals are rising, while house sales in the city in January continued the pattern from the last quarter of 2010, firm Barfoot & Thompson says. It noted that while house sales turnover was low key, the rental market was active. Barfoot & Thompson managing director Peter Thompson said the 810 properties the firm let in January were 3.3 percent more than a year earlier but supply was still short. The $416 average weekly rental last month was $5 more than in December and $15 higher than a year earlier. "The lift in rents started in July last year, and January's average has set a new benchmark," Mr Thompson said.
We all realise that Barfoots have an agenda, but what cannot be dismissed are the facts on the ground.
And as if to ram home the point, the latest rental figures complied by the Dept. of Building and Housing and Crockers (one of the biggest letting agents) show that the rise in rents continues unabated:
By way of example rents for standard 4 bedroom houses for January 2011 were:
Mt Eden - $700 per week, up 21% over 12 months
Sandringham - $550 up 8%
Glenfield - $500 up 12%
City Bays - $850 up 15%
Panmure - $467 up 4%
The only significant fall was: City Centre (cheap shoe box apartments) (-13% at $600 (!!) per week) probably caused by the student exodus.
Of the 30 areas in Auckland surveyed there were 24 rises, 3 falls and 3 remaining flat.
The Politicians Climb In
Phil Goff leader of the Labour opposition recently said that there is a growing housing crisis. It so happens he is right in this instance. (Well, I agree with him.) Yes I know it's politics and all that, but even Phil Goff can get the odd thing right now and then.
Auckland is heading for a housing crisis, due to low levels of building consents and because New Zealand's skilled labour workforce is heading across the Tasman, Labour Party leader Phil Goff said today. However, Finance Minister Bill English said later on Tuesday he thought there was still spare capacity in the domestic construction labour market, and that government was focussed on building skills of young people and the unemployed to meet any future shortages.
In answer to Phil Goff's assertion that there is a housing shortage, PM John Key disagreed by playing with numbers. Of course he would say "There is no housing shortage" because to say otherwise would lose him the next election overnight.
And if you look at the figures Key is right, too, (sort of). There are 1.44 million houses in the country. Assuming a population of 4.5 million, you get 3.2 people per dwelling ... which is certainly not overcrowding.
But it's different in different towns. The shortages show up in the main centres and in the much desired suburbs. There is plenty of space if you want to live in Otara, Taihape or Hari Hari.
If we lived in a dictatorship the State could move us anywhere and we would be spoiled for space. But we don't live in a dictatorship and people live where they find it the most desirable.
Hence, shortages in desirable areas, and room to move in others - a state of affairs that cannot last for ever.
The news media have taken up the cry as well with headlines on the same subject: Rental market madness, Rent crisis hits new high and NZ faces home shortage. (It is always a mystery to me why the media suddenly decide to 'expose' these facts, as those of us in the rental business have known about it for a year or more and some of us have been saying so loud and clear.)
Is there a Disconnect?
With all this talk about falling sale volumes you would think that the streets would be deserted and that open homes would be a thing of the past. The statistics aren't showing this yet but at the cutting edge the evidence is mounting.
As an exercise in market research I advised a client how to dispose of two properties which they were keen on selling. They placed two advertisements for properties for sale - one on TradeMe and one through a real estate agent. The first property was in Pakuranga, a 25 year tidy 3 bedroom home in an area where such houses sell typically for around $550-$600K with a recommended price guide of $595K.
Over 2 weekends of open homes 80 groups (approx 195 people) came to the open home and there are 3 offers on the table.
The other property was a 1 bedroom trendy but very old apartment in the central city selling through an agent with a price guide of $390K. Over two open homes 70 groups (approx 160 people) came through that and there are 2 offers on the table.
And as I write I have been informed that both have now sold unconditionally. The house for $570K and the flat for $384K.
Therefore the question is: If the market is flat (which the statistics confirm) why are there hordes of people even bothering to look?
It seems to me that people who were hesitating are now on the move because the world has not come to an end as was widely predicted . The statistics released to date tell what people were doing 2-3 months ago- not what they are thinking today.
It will be interesting to see if the large numbers of people my simple market research revealed, translates into a busier market or not when fresh statistics are revealed in the months ahead.
Population Growth Continues to Strain
Although there is an undoubted haemorrhaging of Kiwis to Australia, the population continues to grow both in age and number nation wide.
NZ population grows to 4.39 million
New Zealand's population continues to grow older, with the median age increasing by more than two years in the last decade, figures released by Statistics New Zealand today show. As of December, the median age was 36.7 years old, an increase of 2.2 years compared a decade ago, Statistics New Zealand said. Meanwhile, in the year to December, the country's estimated population grew by 1.1 per cent to 4,393,500. The population rise was due to a natural increase (more births than deaths) of 35,800 and net migration of 10,500.
As the queue shuffles forward yet another 10,000 houses are required at least to house the increasing population. This has been going on year after year, but we are not building anywhere near enough houses to cope even with this modest increase.
Not everyone can move in with relatives
So all this leads to a real housing crisis and a consequential rental crisis which is bad for the people but good for those who invest in housing.
The market has been "spooked" over the last two-to three years by a series of events starting with the Global Financial Crisis, the collapse of overseas banks and local finance companies, the bailouts of whole countries, badly thought-out changes in tax treatment for property investors, and shocking examples of greed and criminal behaviour emerging both here and abroad. Maybe one day soon the perpetrators of such rip offs as the BlueChip fiasco will get their just desserts.
But despite all these, the market endures, even if there have been some seriously ugly misfortunes on the sides.
A recovery is underway, slowly, tentatively but steadily ... and we can see that in steadily rising international share markets as well as locally which tend to look 6-12 months ahead as a barometer of collective business knowledge.
With this recovery comes a new raft of stresses and strains.
Housing, rents and the building industry will be one of the first to feel these strains as they also recover, with the certain increase in costs and prices that inevitably follow.
Property investors would do well to stock up early in preparation for the better times that assuredly will arrive.
Olly Newland
February 2011
http://www.ollynewland.co.nz/
© 2011 Olly Newland. Used with permission.
155 Comments
The haloperidol Bill, Doc Alan and medicine-man Bernard were prescribing the housing market is starting to wear off, so they had better be prepared for some nasty side-effects.
(FYI: Haloperidol was the sedative of choice used on deportees by US custom officials until 2008).
The rent crisis is a media beat up..it's like this every year in Jan & Feb with students looking for flats...if you look closer you'll find that it's mainly inner city suburbs - Grey Lynn, Mt Eden, Ponsonby etc...these are the areas students like to live. Yes there is an undersupply but it's temporary and in March the undersupply will button off.
The Duke, just because there was no media coverage doesn't mean it didn't happen...I managed residential property for a few years in precisely the areas where there is an undersupply now...it happens every year...it's a fact...students are the key driver behind it all.
If Dukie is swearing and abusing people that would lead me to believe that he is quite emotional about the issue of whether the market is going up or down, that would lead to me to believe that Dukie has made an investment decision based on emotion, which would lead me to believe that he is a muppet.
The Duke is a previously banned poster who used names such as "The Man", "Rich PI Troll", "Richlister" and a few others.
In reality he's merely a schoolkid troll, not a PI or business person, or anyone who knows anything about anything.
This new sockpuppet will be banned once BH returns from wherever it is he's gone and our schoolboy chum will flounce away in a huff again for a while, as usual, before eventually returning under a new guise.
.... Before we all land on Duke like the proverbial ton-of-bricks , if you follow his debate with Ricardo ( above ) , you'll see that they were having a series of exchanges , when out-of-the-blue , Ricardo suggested that Duke change his name to the Freak .......... It all fell apart rather horribly after Ricardo insulted Duke first .
Let's get our facts right , dust ourselves off , and move on to mass debate once more .
Nothing will change the fact that well located property goes up in value over the long term, due to the simple fact that they cannot make any more of it. Unlike the US Dollar.
That's what I like about land tax: it recognises that they didn't make it but nevertheless cream the increasing values.
http://www.slideshare.net/bernardchickey/motu-economist-arthur-grimes-l…
........ somewhere in the depths of the Marlborough woods , a driftwood smoke emanates from a dingey slab hut , and a wizened little man cackles as he stirs his cauldron of road-kill possums and rabbits ......... the still gurgles softly , as his wild-berry and nettle liquor drips into the moonshine jar ........ he picks up the well worn banjo , laying idley beside his driftwood pile ....... and the tune is Deliverance !
RUN ! .....................
Olly, by the way, I remember you published a book - "The Day the Bubble Bursts"
As per link: http://www.goodreturns.co.nz/article/976489518/review-the-day-the-bubble-bursts.html
Please elaborate, is the property slump still going to happen? Do we have a bubble?
Or have you changed your mind - so no bubble and no property slump....
I'm still perplexed as to why Olly Newland attracts so much criticism . His article appears well thought out , and politically unbiased .
Any dip in property prices will be shallower in intensity , and of shorter duration in those areas of high demand . Commonsense stuff to load up on Auckland central rentals & commercial , but to lighten up on your Invercargill or Parnassus portfolio .
........... And I don't even particularly like property !
I think that at least part of the reason is how Olly's opinions are generally rich in certainty and hyperbole, but as the wind changes the opinions flip flop and are replaced by equal (but opposite) certainty and hyperbole.
It's easy to always be right if you simply predict every possible different outcome...
'the housing market bottomed about 6 months ago and is now on a slow but steady recovery'
Why make such statements when they are so easily disproved with official data from the REINZ?:
http://unconditional.co.nz/property-dashboard/
Back in June/July 2010 when Olly first started his spruiking this measure was 3200, and it has now declined to 3125. In fact you can draw pretty much a straight line from Oct 2009 with an obvious downward slope.
You must be a) very over exposed to property and b) very worried if you are desperately claiming down is up.
yes and BigDaddy's claim that he had "called" Olly and learnt about those Pakuranga experiences sounded suspicious!
yes I rememeber skimming through that book, it predicted a bust, Olly are you saying the bust you predicted is the one we had over the last couple of years?
I thought the book was promoting a bust more along the lines of the American one?
I agree with Olly that, with the benefit of hindsight, that the Reserve Bank raised interest rates far too early last year. The rational by the bank appears to have been the expectation that a recovery was going to start in 2010 and gather a real head of steam in 2011. That of course hasn't happened.
Raising the rates and the increase in GST last year have together combined to make households very very cautious about spending. Toss in an earthquake and we have a double dip recession and no real sign that things are going to pick up anytime soon.
The Reserve Bank & our masters in Wellington are about the only people in NZ to "bank" on an economic recovery - I dont know of anyone else who did!
From my reading of various contributors to the housing argument I conclude that none of us really has any idea whats going to happen!
Duke, now I'm getting some humour out of your comments...it's good..you've refrained from the abusive tone...good on you...did you pop some Prozac like I suggested.
By the way, economics is based on logic...but unfortunately you are the type of person that doesn't appreciate logic...more on the emotional side I'd say.
Another brilliant article by Olly- man what a genius!!
I too read his astounding book "The Day the Bubble Bursts" where he accurately predicted much of what has happened, e.g. finance co collapses, house prices flattening, the collapse of the shoe box apartment market, the leaky home crisis etc etc.
Remember his book was written in 2004. so he was able to predict events 3 years before they actually happened!!
Real estate can make you rich if you are patient and learn.
Being poor is a nuisance as it takes up so much of your time.
So that's why you would be wise to note Olly's current predictions.
Yes.
Brilliant.
Six months ago he strongly advised buying into an asset class (residential housing).
Six months on that asset class is demonstrably cheaper than it was:
http://unconditional.co.nz/property-dashboard/
As you said.
Brilliant.
I think Olly Newland is awesome, he is one of the most positive people around, its just unfortunate that you can only talk things up so much before reality hits, which it has. I'm glad too because maybe this country's citizens will be able to actually afford a place they call home. FYI I was asking my grandfather what it was like in the Great Depression when he was a child, he said the mortagage was nearly impossible to pay, and that he can remember going to Chancery St with his mother to pay the mortgage every quarter, and once it had been paid it was a struggle to the next quater. Sound familiar?
My parents have clearly been effected by the GD effects as children and my grandparents refused to look at any debt....such an adverse reaction for thier entire lives makes you sit back and wonder just how bad it really was....and here we are probably staring the GD mk2 or even worse (more likely the Long Depression mk2)....the only think that made the GD so short was tooling up for WW2.....
"sound familiar" I dont think we have seen anything yet and ppl are defaulting now. The US shed workers in 2008, hence a 16%+ real unemployment, NZ's is 7% ish because employers have hanged in there waiting for the recovery....when they stop waiting and let staff go.....we'll fly past 10%....
regards
@ Steven at 12:25pm
Have you ever enquired of your parents and grandparents how it shaped their lives and attitudes? Your post reminds me of listening for many hours to the reminiscences and history of a childhood friend's father describing the periods just before the war and after his return. The family had been wealthy during the 1920's, the grandfather had owned 20 odd properties in Mt Eden plus a 600 acre farm in Huia. During the GD he could not afford the rates on all the Mt Eden properties and signed them over to any tenants willing to take them on, but managed to hang on to the farm. My friends father never owned a flash car, for a long time during the 50's and 60's I remember him driving an old 1929 Studebaker, driving everywhere at 28mph. Yes, it left an indellible mark on a lot of people.
My grandfather took extra sandwiches to school for his mates because they were all going hungry, lawyers, bankers, accountants, digging diches for 10 shillings a week, we haven't seen the worst of anything yet. I'm just lucky my industry booms in a depression and a boom, I will always have work.
In a very similar vein .. in 1987 I was invested in a number of NZ companies listed on the New Zealand Stock Exchange that were wiped out in the 1987 crash. Never found out what happened to them. They just folded their tents and vanished. Never heard from any liquidators or receivers. Nothing. Silence. I still have the share certificates to this day as a reminder to never invest in the sharemarket ever again. Have never done so. My children have an aversion to the markets. I suspect it will take 3 generations of NZers to forget.
Gareth, cant remember them all, but two I do remember were Blandford Lodge Stud, and Investment Finance Ltd. One other was something to do with salmon farming that got taken over about 20 times and ended up in the hands of Dorchester Pacific, and I managed to get out about 5 years ago above $1.00 amazingly. I had forgotten I even had them. The certificates are packed away in my old-time storage box.
Regal Salmon ......... Cashmere Pacific.........Landmark Properties .......... Judge Corp.......... Chase Corp........... Equiticorp ............ Goldmark ......... Tasman Dairy Farms ......... Ariadne ...... Fortex ....
... [ and in Australia ].... Industrial Equity Ltd ............ Bell Group / Bell Resources .......... Hooker Corp ........... Bond Corp ......... Westmex ..........
That kind of looking back has cost you a fortune petrus. The sharemarkets that count such as in America and Australia are at their record highs. You have missed out on a fortune while housing continues to go backwards. You have to be flexible and see that each market has its day.
To be fair to the Oily Oldman, I broadly agree with his statements. If you always bear in mind his vested interest (and everyone has a vested interest), he is not far off now.
I have read when the bubble bursts, there were a couple of things tucked away amongst the trash( like buy art and whiskey) that were pretty good.
At the end of the day the man has made a shed load by spruiking property, and there are a lot of spruikers out there, if you follow what they are thinking, then you might get an insight into the sentiment which can over ride fundamentals.
Thanks for listening to my monologue as it barfed out onto the screen.
Re: Olly, Fairfax ~ Here in a nutshell we have all that is wrong with the way we in New Zealand have structured our economy. Olly Newland was proabably always going to be successful. It's who he is. Human nature, being what it is though, he chose the easiest option to 'success'. If property speculation had not been a viable alternative for him, he would have chosen another field and made just as good a go of it. Imagine how much more value Olly's skills could have been to the country if they had been applied to, say, technology - (chose any another productive wealth producing industry you like, and insert it, here).
quote from http://www.ollynewland.co.nz/about-us/
From his own mouth. The man who lost $500m.
"Olly Newland is a legend in property investing in New Zealand"
In the ’80s he founded a very successful public company, Landmark, specialising in commercial property investments. Landmark grew from $5 million to $500 million in just a few years. Along with most others, it was swept away by the cataclysmic events of 1987, which few people foresaw.
The fundamentals are still off. You can't have a housing boom when people can't afford houses unless they are all bought by speculators. Real investors would not be interested in 4% yields.
Either houses become affordable and owner occupiers start buying again or somehow speculators will start buying up and driving the prices up. I can only see this going one way and it's down. You just have to look at the fundamentals and the historical data. Unless yields go up to 7%-8% then the so call investers looking to buy will merely be speculators.
It might be 4% yields in desirable parts of Auckland, but in ChCh you can buy at 7-10% right now (not due to EQ damage either). That's an alright return even if you expect flat rents and prices, but factor in a pent up housing shortage (exacerbated by the EQ) and price inflation due to rebuilding then it does start to look like a pretty good entry point.
How are people going to pay for their rebuilding/relocation? Many that have a job will be nett financial losers from the earthquake, and have less to re-buy alternative/replacement accommodation. Most proabably, they will have an overhang of debt from the damaged place. And those without a job will do what? Where is the non building industry work going to come from, Chris?
If you don't care about yield then you are only relying on capital gains. When I put money in the bank, I definately care about the return I will make. With the politicians roaring away on all sides to hit investors/speculators it can only go one way. Labour will ringfence earnings, greens will bring in capital gains and who knows what National will do if and when they get a second term.
Rents will not go up enough to bring back good yields so I can't see how things won't go back to their historical norms. The average house price has historically been between 3 and 5 times the average salary and residential yields have historically been around 7%.
Exactly right marct. Interestingly I have to start a new business this year ( chemical wholesaling / importing) and I had a meeting with the bank last week for finance. I have a number of different assets , td''s, stocks , home that i can use for security. I was surprised to find the bank didnt want my Parnell home as security as I quote " The value of property is very likely to fall" Obviously this is a official bank view on the market now.
Also I have had to move recently and rented a place in Parnell. All the properties I viewed had 20-30 people looking at them at the same time. Rent wise prices up about 18%. now Im told by the bank yesterday that this due to a) investors forced to sell down and and get out of rentals. Also people are not buying houses and instead renting due to uncertainty over a price fall and also the unaffordability. Also people are less confident with their incomes.
to me it just a matter of time until property is between 3-5X average salary / income. Especially with petrol and other commodities rising and fueling inflation.
I definitely do not agree with Olly's assertion that inflation is properties friend , quite the opposite I believe :)
Typical residential investment yields are around 7% right now marct.
Only properties in highly desirable locations and on larger sites sell much lower than that - and they are probably the ones under the most rental pressure anyway.
In ChCh a $250k house will rent at $350pw. You can if you really try and know where to look get something for $160k that would rent close to $300pw. In Dunedin you can get nearly 10% off the shelf at the moment. Auckland apartments can approach double digits too.
Just because a stand alone house with a garden and garage in Central Auckland only rents at 4 or 5% doesn't mean nationwide yields of typical investment properties are anywhere near that level.
Comparing median house prices and median rents is totally misleading since the median house is far superior to the median rental.
Firstly, I am not a property investor and I don't have any intention to be one. I once owned a property with the idea that I would live out my days there, create a home for my wife and I, and enjoy the simple pleasures that life has to offer.
What Olly says in his article makes sense - from an investor's point of view, and unless he sold off all his property at the height of the boom he certainly won't want any more decline in values.
The problem that everyone is ignoring is the fact that property became an investment in the first place. Everyone is ignoring the social cost.
Add it to the list of other events throughout history and all it highlights is the greed of one group of people, where money and as much of it as possible must be accumulated.
http://www.converge.org.nz/pirm/money.htm
Here is how it has evolved (in my opinion anyway).
Banks and financial institutions were once only the middleman that held money and assisted in passing it on to those who needed it to produce things that people needed. Mankind manufactured/grew products (food, clothing, tools, machinery, etc) that people needed to make other products and to live. Most of these people worked in these productive activities.
Stock exchanges were created as another means for the manufacturing industry to access capital so that they could increase their manufacturing capabilities and provide products to a growing population.
I'm not an expert and don't know what caused the Great Depression, but I'd be willing to bet that one group of people with all the money didn't lose all that much. The average worker lost a lot more.
Roll on to the nest boom and the 87 crash. Again, those with all the money didn't lose all that much. The average worker who wanted some of it lost a lot more.
At this point the manufacturing industry is plodding along - we'll always need stuff made, but is there enough money in it for those who already hold most of it? How are the greedy going to continue accumulating money? Dot.com boom anyone?
Now where can the rich put there money? Financial institutions have now evolved and are creating "investment products". There's a lot of money held by a very few who want more. They don't care where this capital goes as long as they get great returns. Where did it go?
My parents bought a rental property in 2000 through a property development/management company. I don't recall property being spruiked back then and it was just part of a retirement package together with their employer superannuation fund. The property was constructed for approx. $300k and at a time when all the west auckland vineyards were selling their land. The property has been managed very well, the financing was structured very well and my mum and dad should be ok in their retirement.
How many went out and bought more than one rental property? How many jumped on the bandwagon because they saw others making a killing in the property market? Who at the end of this "investment" cycle is still going to have lots of money?
I no longer have the property I previously mentioned. It went to the ex for the benefit of our child (around 2002) as I thought I'd be in a better position to create a new home for my son and I. I'm still looking for a place I can afford if I can get the finance. It now costs $600k for a new 4 bedroom and $400 for a new 2 bedroom. I can't find anything that suits my circumstances for $300k and I don't have the $60k required if I could.
I'm not looking for sympathy. I'm a fairly well paid professional earning the median income. Thing is, I'm probably less productive now worrying about how I'm going to provide a home for my family than when I could afford a home.
Is property still a logical investment? Has it not done it's dash like all the previous booms before it? What's the next boom going to be? I see an article about climate change being a mega theme according to major global institutional investors.
Anyone who followed Olly's advice a year ago and bought an average house would have suffered a capital loss of around $10 and a similar amount in holding costs (mortgage interest paid / loss of interest received on deposit).
It will happen again during the next 12 months.
As I posted yesterday, it now costs 2-3 times as much to own as it does to rent right now. No wonder so few people are buying.
Ahem..cough...just been south and had to fight me way through the listings and past the vineyard casualties..got word the rich tourists are counting the bills these days...roadworks going on everywhere...hills being flattened..valleys filled and resealing recently resealed seal is the name of the game. Went round Chch there and back.
Let me see now....Blenheim listings 299 up from 238 jan 1........over 25% increase on Trademe!...that'll be reported as a drop in listings if reported at all...
Its going to take a shock to bring them down, and there will be a lot of pain out there when it comes, no doubt about it. Unemployment will be high, benefits low, people will really struggle, way more so than today, I believe that as a large group of communities and a country we have an obligation to look after everyone who resides in our country no matter where they are from, and I reckon as a country we will all have to stick close together. And I reckon after its all over a lot of peoples values will have changed for the better, and renters won't be looked at as 2nd class citizens in their own country.
"I believe that as a large group of communities and a country we have an obligation to look after everyone who resides in our country no matter where they are from, and I reckon as a country we will all have to stick close together."
Does you include a toad named Harris and other like that?
Well that was a great drive round the south island....lots of beautiful things to look at....heaps of unsold property to ignore...you name it...even vineyards in Otago...overgrown with weeds....tourists getting an eyefull....Got the word in Queenstown that the rich are being extra careful with their dosh....don't intend to drive over Danseys pass again in a hurry!
People look as though they are settling in for a very long period of poor economic peformance. The regions are clearly heading down a steeper slope. Marlborough listings are up more than 20% since jan first.
From Olly's website the latest ( courtesy Bob Dey) on commercial property.
You should carerfully note that big prices ( i.e. dropping yields)
= rising confidence
= flows through to housing in the long run
Published 18 February 2011 Bob Dey report
Bayleys Real Estate reports a strong start to the year for its commercial agency, including 3 transactions in Parnell at sub-7% yields and one in Newmarket at 7.2%.
Sales:
Parnell
295 Parnell Rd, 2135m² NZ Post building in the heart of Parnell’s shopping strip on 857m², sold for $8.5 million at a 6.3% yield. It’s fully leased with 9 retail & office tenants, with NZ Post the anchor tenant on a lease running until 2018. The 3-level building was designed by Jasmax Architects and built in 1990. Alterations & additions were completed in 1997 (Henry Thompson & Stuart Bode)
135 Parnell Rd, 431m2 2-level standalone commercial building on 305m2 site with rear access from Falcon St, sold for $3.3 million at a 6.3% yield. The National Bank has been the ground-floor anchor tenant since 1998 and there are 3 upstairs tenancies. (John Jefferson)
535 Parnell Rd, 2-level 604m² building on 653m², in Bayleys’ Total Property portfolio in December, sold post-auction for $4 million at a 6.9% yield on a lease to Italian building products retailer Spazio Casa until 2015, with 1x3-year right of renewal. The building has 16 on-site parking spaces and was substantially refurbished for Spazio Casa when it moved in in 2003 (Alan Haydock)
Newmarket
11 Alma St, 459m2 office building on 382m2, with 2 parking spaces, sold for $1.2 million at a 7.2% yield, leased to 3 tenants on 2- to 4-year terms (Scott Kirk & James Were)
Thx. MK. But I'll give a go at answering my own question:
The buyers are buying, because they expect interest rates to fall much further, and will lock in long when that happens. ( ie: net return on purchase price ~ I think calling gross return, 'yeild' is misleading ~ will rise) That will happen as the general economy tanks. It may be all very well and good for commercial property owners that can hold on to a leased tenant for 'x' number of years, but that tanked economy is going to obliterate the residential proprety market. "Zero" interest rates are going to be the only thing that keep struggling home owners afloat. Those that are overcommitted are headed for the slaughter house.
PS: "Owned by the Government" ,you say! What do they know, we dont'!
There's no doubt pressure on rentals is increasing. So many young people can't afford to buy that this is a natural outcome.
However, lets see how things look in a month or two when the student flat hunt frenzy has subsided. There has always been high seasonal demand early in the year. Conversely, demand in December is usually down as lots of students have vacated. I
What difference does a 'years lease' make? It's only the lenght of time that the bond covers that has any bearing on a student rent. Half the time the landlord has different tenants at the end, than at the beginning! And if you've any experience of the Tenancy Tribunal trying to enforce a lease, then you'll know it ends up costing the landlord....even more!
this is getting a bit tiresome SK....lets take you through it sloooooooooooowly
University year ends November-ish - OK?
Many students in Auckland have home towns out of Auckland - OK?
Come November many student flats break up: students return to their hometowns - OK? FOLLOWING ME SO FAR????
Then there are a number of vacancies November / December - OK?
Said students plus new students from out of Auckland return to Auckland around early February - OK?
Therefore putting substantial and intense "seasonal demand" on rental properties? OK?
What about this do you fail to understand???????
Also you keep harping on about $750 / $800 flats, and students not affording them. As I said before there are plenty of 3 bedroom flats in central Auckland for a lot cheaper than that. I'm living in a nice 3 bedroom villa in Remuera for $560 pw, for example! Thats easily affordable for 4 students
In Dunedin students pay 52 week leases, mostly signed up in August the previous year. (so I lose 1 day a year!) I doubt many Auckland students get away with taking Feb to Nov leases, we certainly don't let that happen on ChCh flats either, although in ChCh for some reason leasing end January to end January is more common rather than 1 Jan to 31 Dec like in Dunedin.
I won't bank on it, but its only gone up $10 per year in the 3 years we've been here.
the landlord values our tenancy, we keep the place in great nick and the years before we moved in there was quite a lot of turnover so the landlord clearly sees the benefit in keeping the rent down to keep good tenants (us) staying here.
Clearly its a mutually beneficial arrangement - long may it continue
NA on my Dunedin university flats I have NEVER had anyone forfeit on paying the full lease. The students MUST HAVE references for the next year and they know their friends will be on the hock for it if they don't pay. Also I always take Mum and Dad's number, although I've had to chase anyone there. Working people and unemployed are not so obliging which is why I won't let to anyone unless they can provide their employment history and references too. Students are much more reliable (or at least the students I choose to let too are).
I guess, as you say, there may be a subtle differences with what I see here in Auckland. Many of the students aren't from New Zealand. The block I live in? I've had the next door neighbours disappear in the middle of the night, and I regulaly see the on-site agent remonstrating with a tenants in arrears. ( "But the money is being wired in by Dad from <somewhere> tomorrow!). My only point to SK, yesterday, was that a lease is only as good as (1) your procedures and (2) then,your tenant! Oh: and this property - the place is like a ghost block Nov-Feb. This year the re-invasion didn't happen and there's empty apartmnets galore.
You know why, Chris? Because it's your business; you know what you are doing. It's not a part-time, salvation to riches for you. I have no problem with professionals in any industry, doing what they do. My problem with property ownership in New Zealand is the ever present danger of ameteurs at every level, expecting to 'get rich' without doing any work; and expecting it as-of-rite. It's just another goat farm, vineyard or finance company disaster waiting to happen.
Well...they are rather nice digs. ( the penthouse is owned by a premier league soccer player based in England, and is his pad when he's out there playing for the All Whites). But I'm here for the little lady. Her course ( yes, she's a ''mature aged' student) is only avaliable in Auckland. But this year will see me out, otherwise my judgement, amongst other things, will be impaired!
To my mind there are three things propping up the student accommodation market:
- Interest free student loans
- Near universal qualification for student allowances
- Low (virtually non-existent) educational attainment standards for entry to tertiary study
Tertiary education (and associated living expenses) is largely purchased with OPM (taxes) - overseas students being the exception (that's likely why they're often late with rent!).
I just don't see these policies being sustainable in the longer term unless of course taxes are raised - and naturally the target for such rises are likely the very property owners presently benefiting from the state's largesse.
Kate - the whole broken and phoney University system is a topic in itself!
I am very cyncial. Its one big money making circus. I am constantly astounded as to the graduates that are making their way out of Uni with A grades - some of them can hardly write, let alone string together coherent and logical arguments
this money making charade disgusts me because the value of a university degree in my opinion has been markedly downgraded by this nonsense, all in the name of "de-elitisising" universites (another word for "opening universities up to the masses so we can generate as much fees as possible')
SK, you said "It's not correct to say that this rental demand is due to students." That is purely your opinion...I need some facts before you are taken seriously. Got any facts for me...
Also, Nick Arrand is right about the one year fixed term tenancy....Tenancy Tribunal are generally pro-tenant...if a tenant has bailed on you, you need to take reasonable steps to rent the property...if it took two weeks find someone new, then the delinquent tenant owes you two weeks rent...not one year...OK got it.
Hi Iconoclast...you are right, renting a property to RWC tourists could be lucrative, but quite risky though...can you imagine half a dozen rugby supporters blind drunk running riot in your property, there could be some damage...and when it comes to recovering damages they can just jump on the plane home...also when the property is vacant and you are finding tenants, there will be an oversupply of property, and it may sit vacant for longer than usual or rents will drop around Eden Park...RWC is only for a six weeks, I'd go for a stable tenant...
We have just got our tickets now also for a semi-final but have little intention of getting blind drunk. Don't think that idiot section amongst rugby supporters (it does attract the complete cross-section of society) will be affording the prices at Eden Park somehow
You know what, EH? There is smart money out there. But it isn't going to come out until it makes financial sense ~ until the numbers stack up. They don't ; they won't for a while, but they will. What have we learned from the aussie sportsmen? "Never, ever take your foot off the throat!" And buyers have their foot pressed down hard, right now. A bit more squeezing, and the life will be put out of the sellers twitching corpse. When it's cold; then is the time to buy.
I'm a numbers man myself NA! They sure don't stack up right now. But I must admit, I like the thought of my foot firmly pressed on the throat of a sellers cold, twitching corpse. A great image to take into Friday drinks!
My foot is pressing down gently at the moment - I recently renewed my rental lease on a modern 3 bed home near the beach here in Oz - for a reduced weekly rental amount I might add. Funds in the bank are paying for rent and all living expenses thanks to some competitive interest rates available. Several more years of debt free, comfortable living here, doesn't bother me in the least. I'm a patient man NA - I hope the PI's are too, but somehow I doubt it...
I'm one of the thousands of kiwis commented on in here that has jumped the ditch for a change in scene. Been here for 3 years but keep a close eye on property both here and in NZ. I sold up in '07 and managed a good FX rate in '08 to bring my loot over here for a bit, while this GFC plays out.
I hope that does not exclude me from contributing in here in your eyes? Afterall, different perspectives are what makes these forums interesting in my opinion, eh!
Wolly, all for you quote from UK
In his letter to the Chancellor explaining why CPI inflation has hit four per cent, Bank of England Governor Mervyn King says something that surprises me.
I don't mean his claim that inflation is probably "well below two per cent" if VAT and commodity prices are excluded. Simple sums tell us he is right here. For example, food represents 103 parts per 1000 of the CPI, and its inflation rate is 5.7 per cent, so it has added 0.59 points to inflation. Petrol accounts for another 44 parts, so its 15.3 per cent inflation adds another 0.66 points. Take these two off and inflation is 2.75 per cent. If we consider that the VAT rise added 2.1 per cent to the prices of the roughly two-thirds of goods that are subject to 20 per cent VAT, then it accounts for a further 1.4 percentage points of inflation. Take this off, and inflation is a mere 1.35 per cent - though whether this is meaningful is moot*.
I don't know whether this makes sense, just quoting it.
Well I was just about asleep by halfway through this thread. Gee anything about property is guaranteed to get 100 posts, which to me just proves how over exposed we are in this investment vessel.
I have said it before and I will repeat it.
Property investors seeking out constant capital gains are good for nothing leeches that contribute nothing to society.
The capitalist system contains within it the principle by which is works. Yes that is right it is about risking capital to make what you hope to be a profitable enterprise, and not using other peoples money as the parasite scum investors do.
As for those discounting the effect of students on rental accomodation, well you can see that issue is something I am close to. So I know of 50 odd students(2/3rds of my year) that left their flats in mid November and are now sorting out accomodation for the new year. That isn't just a few weeks over summer, that is a quarter of the year.
Question, who here leases out properties to students? What is your occupation rate?
... you know of 50 odd students ? ....... Frigging government ought never to have caused the rehabilitation workshops and the homes for the bewildered to close down ........ I see that Wolly's out & about , again . Case proven !
Hey , those good for nothing leeches who want a capital gain , and who contribute nothing to society ............ are you having another crack at Goofy's gang , the Be-Laboured Party ? ....... Good on yer !
Damn I have been found out.
Hey have you ever read Ian Wisharts book absolute power? Forget the first 90%, as that is just waffle as he is really just dotting the i's and crossing the t's and it gets a bit boring. Just turn to the last 3 or 4 chapters as it is interesting reading. Is corroborated by someone I know that was around in the early years.
Maybe I could extend by leeches description....hmmm no there is probably something more appropriate. Not that I would restrict it to any particular party, something about tar and a brush.
Totally agree....there seems no concept of producing a good....now a % of professional landlords, yes, and they are there for a living and not capital gain....but when every man and his dog speculates on capital gain that to me if nothing else is time to get out of that sector.....except of course I wonder how many of these so called PIs are capable of anything else....ie real work....
regards
Unlike most commenters here, Olly is exactly right. Low sales volumes at present mean the purchasing opportunities are simply getting better and better.
In ChCh at present you can buy a solid house on a full size section in a reasonable part of the northwest for around the same price that a rough house on a cross lease in the much less desirable east sold for in 2007.
There are real opportunities for investors to get high returns possibly double digit returns if you know what to do, the opportunities haven't been this good for nearly 10 years.
yeah but getting those deals means lower house prices!!!!
Again we are in different parts of the country, but in Auck the only kind of properties you will get upwards of 6-7% yield are typically shitty shoe box apartments or scummy "sausage flats" - so you may get 7% on these but bugger all capital gains, in fact capital losses quite likely
Sure, it might be different elsewhere, all I know is Auck. Good on you if you can make it work where you are
Olly, Olla, Let’s rock - the revolution baby - against greed and other stupid people !
"family house prices in the big cities have to become more affordable."BH in the herald
Good call BH...pity about the economic gale blowing your words to shreds...demand for housing increases where jobs remain...hence the big city property prices....and the collapse in the regions.
Those few jobs attract the free to move pop and that creates more jobs...the same trend leading to the ditch jumpers!
So it's necessary to look at the regions not the big smoke. Trouble is the regions are all about land and primary production and that is trending toward high tech low labour...only the dogs have the promise of work!
Throw in decades of pisspoor returns and of poor govt to get capital gains as the only pathway to wealth helped along by a banking sector oh so eager to fund the bubble.
QED...there will be no employment boom in the regions. There is no way to drive down 'big smoke' property prices. Those who stay are certain of a low income future paying high rents or feeding a bank. The smart capable and skilled who want to make something of their lives will leave.
Haloperidol, Wolly. Chris-j posted yesterday that 'Bill, Bollard and Bernard's' drug was wearing off. Bill and Dr. B I could understand, But, Bernard? It made no sense. At about 3.24am it did! Bernard has been doing his bit, too. He reduced his 30% to 15%, and the article you mention above, is in the same vein.
Chris-j is right. The drugs are wearing off, Wolly. The kiwi populace is about to see the world in all its stark clarity. I'm pulling up the gangplank; I have been standing at the enterance way to ark, imploring embarkation, and have been told " It always rains at this time of the year." But over my shoulder, and without turning to see, I suspect Chris-j has seen the cyclone, Yasi-like, approaching. The first drops of rain are falling, and they gently splash... "Whitcoulls...." Andrewj has a nice boat; you have a bundle of driftwood that will do nicely; a few others are also so prepared. It's the first of the 40 days. See you on the other side.
I'm not so sure there is another side N/A......rest assured tis better to be well up the side of the mountain when the wave hits...pity the poor fools who fell for the banking bullshit.
I have horrible nightmares that Goofy and fellow liars will be able to buy enough votes to shove their snouts back into the trough. Meanwhile we are expected to believe in a tradeables sector rescue while Key's mob continue to splurge using other people's loot.
The youth that BH worries about are doing the right thing...buggering off before it's too late.
The building sector believed in Helen's bubble...they still don't realise it was all fake and floating on credit.
What's coming down the track?....higher rates....higher inflation...more govt lying....mountains of BS and spin....deeper recession....greater exodus.....misinformation....lower real incomes....continuous debasement of the currency.....
This blurb in today's Herald:
"Retirement terrors. As baby boomers hit retirement age the thought of living on NZ Super is giving some a nasty surprise, this week's Listener reports. And those with rental properties they intend to sell to fund their retirement could do well to sell now before what one commentator sees as a medim-term fall in the average house price."
Just curious - why must baby boomers " ...sell to fund their retirement..."? Are they all expecting to just sell up, stick all their money in the bank and live off the capital for the next 20-30 years? Why wouldn't they just keep their rental propertties so they have cashflow?
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