By Greg Ninness
The chief executive of this country's largest real estate agency believes the housing market is running so hot that there may not be a traditional winter slow down in the market this year.
In a Double Shot video interview with interest.co.nz, Harcourts Group chief executive Chris Kennedy said he wasn't sure there would be a traditional slow down this year as the market headed towards winter.
He said migration inflows were still incredibly strong and mortgage interest rates were still incredibly low. And on top of that there was a massive housing shortage in Auckland.
"So all factors point towards this continuing," he said.
"I don't know how you'd find 30,000 to 40,000 houses to put them into the mix to fill the buyer need that we've got."
There were also signs that investor activity was picking up again in Auckland.
Kennedy said many investors left the Auckland market to find properties in the provinces when the two-year bright line test for tax on capital gains and the LVR restrictions on Auckland investment properties were introduced last year.
But investment activity was picking up again in Auckland, driven by the prospect of further capital gains.
"Capital gain is where it's at, at the moment for investors," he said.
However the mix of investors might be changing.
Some investors who had owned investment properties in Auckland for several years were deciding it was good time to sell and realise the big increases in the value of their properties that had occurred over the last few years.
At the same time many mums and dads who had seen big increases in the value of their family home were borrowing against that to help fund the purchase of an investment property.
"Mums and dads are saying we are going to get on this as well and be part of it," Kennedy said.
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129 Comments
Apologies to most renters, was not trying to offend them... but P contamination is an issue (or a hyped up cleanup industry??) and there were recent headlines about a scarcely believable incidence of contamination of state houses recently.
So I'd still be careful about buying any house without a history of good long term tenant or owner
Interestingly, I noticed this morning while driving around the North Shore that there are very few real estate signs outside properties. In previous boom times there are signs / flags /open home details galore, so you could see that the market was humming. It's not like that now.
Our neighbourhood (Glenfield and Brikenhead) are swimming in real estate signs.
I went to the neighbours auction last week Friday to see what the property sold for, and not a single bidder. I wasn't surprised once I saw the house from the inside and then saw their asking price after they listed it.
"At the same time many mums and dads who had seen big increases in the value of their family home were borrowing against that to help fund the purchase of an investment property."
I love that...market says my property is now worth a lot more so give me some debt that I can put in to the same asset class. Forgetting that if one drops in value, both do, and that debt will still be there.
Thank you BigDaddy. It is refreshing when property owners can see also sense and agree that the current situation is unsustainable - rather than just seeing the $ signs. I think all eyes are on the RBNZ. Whoever announces a solution first - whether it be the RBNZ, Labour or National will get my respect.
Of course Auckland property isn't going to slow down over winter, it's Elysium, the land of gods and landlords (well they're one and the same really). Good news all round for all kiwis and non-kiwis. It's just another great pieces of news backing up the fact that Auckland is by far the best city in the UNIVERSE! Man I'm smart because I knew this was going to happen.
Three years ago I would have cheered over what Chris Kennedy said but not now.
I have completely changed my mind since then and now only see a the day of reckoning coming ever closer.
Pay down your debts, sell loss performing properties, and don't count capital gains as realised gains.
You can't pay your bills with capital gain. Put some cash away no matter how low interest rates may be.
....I'd imagine there are many around like me. Done all that and have been holding the postion for some time. But the pressure one gets put under by colleagues, family etc to change tack and dive into property (family home excepted) takes some resisting. Much of the pressure orginates from hyped up vested interest media... I'm holding my line, assest well spread for risk, but property performance keeps embarrasing my strategy..
Solid advice. Having come close to financial oblivion in 2009, this time around we're pretty cautious and have split our mortgage into fixed/floating and twice paying down the floating portion before the next refix.
If it hits the fan like I'm sure it will soon, at least we'll have a good buffer. People forget how dire it was in 2009, and that wasn't even as bad as overseas.
People laugh that we have enough cash to see us through a year of mortgage payments, but once bitten...
My work colleague became a real estate agent in 6 days online, and they call themselves "professionals".
How can anybody possible take what they say seriously with this level of training. REA fees are only justified if they add a significant premium to the market price of the property.
I had many clients in your game. A lot of relationships break down as a result of time apart. You deserve to be paid well for the sacrifices you make in terms of family time. We need a strong oil industry as it provides work for a lot of people. Typical of your industry to be into property. Have you any equities.
thats what i find so crazy all these people thinking they are rich because their house is worth more, so what unless you sell and live in a tent it does not mean much. you still have to live somewhere so once you sell you need to buy again in the same market.
to me its PR spin about house prices rises are good, most that own dont care what they do care about is getting rid of the mortgage
You have a valid point for people owning one property. For other's like Burnsy who have multiple houses bought some years ago, I would imagine they would have very little or no mortgages. Passive income generated from rent will most likely outstrip most families combined income, and that's just passive income. Now that is some serious cashflow to actually feel rich, not paper value.
agreeded but he would brought those in cashflow positive times and added by using the increased equity without going into negative. also he played the long game decades to get where he is, through ups and downs it did not matter as he had breathing space on the downs.
I see the same discussion on the PI site, the old hands that understand the time and input to be successful and the spruikers talking paper values and GC.
If the global economy goes t*ts up then a lot of people overseas who have the resources to escape will be looking for a safe little bolt hole almost unnoticed at the bottom of the map. Perhaps a bit of that is already happening, there are wealthy people buying up land in the Wairarapa and further south. Not sure if they'd be keen on a shack in Auckland though.....
The best advice is start paying off the debt now. Time to smash the Mortgage with everything you have while the interest rates are this low. Looks like they could be low or even lower for a few years yet so get some decent equity in your house. Shame most people don't see it that way, is it just me or have Mercedes made a resurgence of late ? never seen as many new cars driving around the North Shore as this. People still spending up large based on their current property values.
I had a mate who had a small company making great money in 2005,06,07 start of 08. He could of paid off his $1.5m farm with the cash he was making. But no - he bought 9 cars, a boat and dropped close to 100k on converting a shed on the farm to "party hall". Of course when the slowdown hit he lost absolutely everything. Lever up when times are good and smash the debt as hard as you can while keeping a bit in reserve for the next recession.
Look at the data. We know the game in property investing is capital gains not really yield. That cycle for Auckland is over and these mini cycles outside Auckland will be over soon too. With no one left to buy (as they can't afford to) the market might come down.
See the stratified index chart for Auckland down from its peak in Aug 2015 of 6,300 to Feb at 5,750 - that is a 8.7% decline. http://www.interest.co.nz/charts/real-estate/house-price-index-reinz-rb…
But wait, the banks or real estate agents won't shout about that, and media covers only what they are paid to cover.
It's a bit of a shame GN that you didn't ask Chris Kennedy what is underwriting all this mortgage debt...
People need to remember what an investment property is meant to do for them and that is return a profit......
How many more houses has the Government got to sell off ? Because when they are done selling expect the biggest shake up of the entire housing market in years!!
The government and the RBNZ cannot and will not allow property prices to crash. It would be the end of NZ. I'm always amused at the doomsters and fear mongers praying for a crash. What are you really praying for? Unemployment? Civil strife? Bloody idiots.
It's too late now people - too big to fail is here. Get used to it.
I actually think most of are in agreement - we don't want a catastrophic collapse - just for prices be to be under control. You say the RBNZ and gov wont let it collapse. If that's true they need to keep introducing measures until prices stop rising. The interest rates and demand should prevent a huge correction.
People are warning of problems with the property bubble. It's a contrast to the property hype. When people lose all sense of reality they hop on the bubble bandwagon and cause it to burst.
No one wants it to happen because the majority of people would suffer.
Too big to fail doesn't exist, whole nations can fail. Our small housing market could collapse with the loss of confidence and cash flow problems. The measures RBNZ have been in place are to stop ridiculous speculation that would lead to collapse.
We also have no control over external effects. If a lot of foreign property investors decided to flee with their money we could end up with a lot of vacant properties dumped on the market. Denying that a collapse can't happen isn't going to lead to the best investing decisions.
There will be a crash, that they can't stop even if they had the will...which they don't. What they can do is fudge a crash by stealing from bank depositors , thus those latter things you mention will come about including rioting. The target of those riots will be banks, bankers, MPs and anyone seen as the compliant perpetrators of that thievery. Fun times, not. The fundamental key to having a civil society is promotion of equality where possible. Not the opposite
The government has the tools to control house pricing, they are just not using them. Too afraid to upset the likes of China and the massive trade potential. Simply turn off the immigration tap, its a simple as that but unfortunately its all about the figures and immigration if propping up the economy, everyone has to live somewhere, has to eat and buy electronic junk, hell even people leaving Syria have trendy jeans and an iPhone ! We are totally powerless to change it and don't think for a second a change in government will make any difference, no one wants this "inevitable" crash to happen on their watch so its just pass the hot potato.
After reading all of this, I believe the answer to how long this can still last for is linked to who's been buying lately, regardless if it's for investment, FHB, or any other reason.
If it's predominantly "local money", I predict it won't last another 6 months as the foreign money being passed around at the moment will dry up.
If there's a significant portion of "foreign money" still coming in, then the sky is the limit, and this will carry on until wealthy overseas investors can find a better return for their investment.
Not sure it is about a place for foreign money to find a better return for their money. It is at least partially about a home for shonky money as is the same for Vancouver and Australia. Shonky money is not about investment return it is about trying to legitimise the money.
"If there's a significant portion of "foreign money" still coming in, then the sky is the limit, and this will carry on until wealthy overseas investors can find a better return for their investment."
And have you seen the latest headline in the Herald of all places - predicting a correction? I actually feel someone has been listening to us. Please consult us all about the wording if you like. Lots of smart people on here who will support you. Thoughts anyone??
Really I would put the stopping or massively restrict; 'Non-Resident Property Investors' I wouldn't refer to them as 'Foreign ownership' as that can be confused with immigrants who have actually made the commitment to moved to and now live in NZ and hopefully for the long term.
But 'Non-Resident Property Investors' are the ones that have to be targeted. Starting with only allowing them to invest in new building programs, at least put the laundered money to some good use for NZ.
Remember what happened last October with the introduction of the IRD requirement and the Auckland property market practically ground to a halt, so we know this has and is continuing to fuel the property market.
Here's a reminder: http://m.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11572…
There's a statement in the article that comments that: "Australia and New Zealand are competing with the US, Canada and the UK where there are no restrictions on foreign buyers".
That's not actually true, both the UK and Canada have Capital Gains Tax and the UK also has closed any loop holes for None Resident property owners, plus they've just recently increased Stamp duty by an extra 3% for Property Investors.
Also Australia has taken steps to reduce 'Non Resident Property Investors' so why can't we?
http://www.bbc.com/news/world-australia-31615314
Someone asked the other day about what would be best to do if you actually did have the deposit money. For this person the housing situation is not a problem but an opportunity.
Both Westpac and Harcourts agree on this.For example:
If you pay rent at $500 a week housing will cost you 26K
However why not buy a two bedroom unit for 500k with 100k deposit?
Borrow 400k at 4.2% costing you 16.8k in interest
You save 9.2K a year as interest is only $323 a week dead money instead of $500.
This saving is used to reduce your mortgage but it is saving nonetheless.
If the house value then goes up according to Westpac's prediction of 11.5% you get 57.5k
57.5k + 9.2k = 66.7k
Your 100k has turned into 166k in just one year. It rarely gets better than this.
If you are comparing like for like properties, can you show me where a house/unit that sells for $500k gets $500 a week rent? A 5% yield these days is quite rare, especially when considering rates / insurance / maintenance.
Also, the magic question, where is this $100k coming from?
How about this. 415K with $425 rent. Potential to improve and get more rent. Easy DIY maintenance.
http://www.trademe.co.nz/property/residential-property-for-sale/auction…
100K comes from married couple both working, doing as much O/T as possible for about two years.
I'm happy for the errors to be pointed out, it was a rough, indicative, calculation. I think the sense of high costs may be because repayments include capital and not just interest for most people perhaps. Maintenance costs are often exaggerated by naysayers too. Maintenance-free is the holy grail of property investors.
I have never heard of a maintenance free house, a lot of PI's do the little jobs to keep costs down have done plenty in my time, and then there is the clean, tidy up between tenants, but then I guess your property never changes tenants as well.
I love the way many people gloss over the costs to inflate the paper profit.
I like to work in the real world where I know exactly what my costs, income and cashflow are
Maintenance free is the Holy Grail while low maintenance is achievable. Investments that have the potential for impressive returns are usually not certain so why should the costs be certain too? I don't see why costs, income and cashflow need to be known exactly. Maybe this is a key issue with some folk here. Uncertainty, they cannot handle the uncertainty, which is odd because it is an everyday reality.
because you are spruiking Auckland RE as the ultimate investment but your figures are made up and not actual.
in Auckland without GC or a very large deposit the yield is negative so the investment for the time and money invested does not make sense..
You are soley reliant on GC whilst in many cases tipping in extra funds to keep going.
if that was a business the bank would pull there loan
outside of Auckland you can still be cashflow positive (therefore the tenant alone pays off the mortgage} so PI gives a worthwhile return.
Important factors were that the hypothetical home buyer was already paying $500 a week in rent.
Westpac predicting 11.5% price rise. I'm not spuiking anything, just pointing out that it is entirely possible to turn 100K into 150K+ in one year in the current environment. Of course there are risks but at least this house buyer gets a home to live in too.
I quite commonly deal with buildings that have deferred maintenance, or buildings that are rotten. Maintenance tends to be kept to a minimum with rentals. Just a fact of the environment we're in.
In relation to the calculations for the house say it did earn $500/week and had a $400k 30 year mortgage that is not a complete disaster. That's around $448/week in mortgage payment. It's cash flow positive, of the mortgage payment $319/week would be interest at the start. While the numbers aren't great they do work over the long term. Initially that would be a return on equity of about 9.4% while having a tax write off as the interest expense exceeds the net gain of house equity and cash. Leverage and tax write offs.
No such thing as a maintenance free home but the construction of it has a big influence. If your the sort of person that can do everything themselves from an oil change on the car to a coat of oil on the deck then the "Maintenance" costs are next to nothing. Basically I'm where I am today because I don't pay anyone for something I can do myself, it has saved me tens of thousands of dollars over time.
To be honest, I haven't read all comments on this post - being about property it's fairly long and I've skimmed through it, so apologies if I've flogged anyone's post (or a dead horse). There seems to be angst from quite a few about rising AKL house prices. There are also many happy people because if you were born on or before that famous show "Lost In Space" came onto (newly invented) TV screens you'd be fairly well set and this does compute (status quo)... So politics aside this will be managed systemically and hmmmm.... therein lies the major underlying problem...Politics.
So let's assume the world's last hope comes to pass and we get mega-GFC 2.0 with stock markets crashing, cerdit freezing etc. What will happen? The central planning banks will of course print even more money, keep interest rates between zero and negative for many years to come. But what can be the end point of such a development? As market forces have been abolished by central planners in politics and banks, it is hard to imagine that economic mechanisms will resolve the situation "organically".
Will the end point be that so many people end up marginalized that social order breaks down, we get riots and governments violently toppled?
Market capitalism in all its brutishness weeding out weak political and business models has given us stability for decades. I wish we had stayed with it. The heated if not hateful discussion here is maybe a first sign of things to come. Usually "interest" articles draw an order of magnitude fewer comments.
Good luck to us.
It was less than 400 years ago since the Dutch PM was killed and eaten. Politicians need to know when it's time to change to more popular ideas, or the consequences can be quite unfortunate. At the moment status quo is still popular despite the slow, eventual failure.
maybe JK can sell him His House
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=116…
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