Looking at what’s going on in the world right now, one might not be wrong in thinking that all of the planets have aligned and that all signs point to investment property being the number one option on the radar for investors here in New Zealand – and in particular – Auckland.
They say that fortunes could be made or foregone in this current climate with regards to getting into residential investment property.
Let’s briefly look at six reasons why those planets have aligned and why we believe now is the time to act!
ONE: The World Investment Scene
Let’s face it, Kiwis have had a love affair with investment property and a back-turning disdain of the share markets ever since the lovely crash of ’87. When we see world events etching ever nearer to cataclysmic financial proportions like we have now, this only goes to instil even more warm and fuzzies for bricks and mortar in Godzone. About the only thing on this planet that’s not only showing definite signs of growth but another boom – is the New Zealand, and more precisely, Auckland investment property market. Don’t get me wrong – Shares have their place in any investor’s portfolio and I would not recommend investing just into property – I’m just telling you how it is out there: Kiwis are running with open arms to their beloved investment property whilst all else leans towards the ‘too risky’ basket. By the way, commercial property is also in this same ‘too risky’ category with massive vacancies everywhere.
TWO: Interest Rates
We’re seeing the lowest interest rates here in New Zealand in about the last 50 years. And, they’re not showing any signs of increasing in the near future. They’re looking to stay low and maybe even lower until at least 2014. My advice?: Float float float right now! Hit your banks up for lower rates too! Lending on investment property is coming extremely cheap right now. This all spells less impact on your back pocket to top-up a residential investment property. In short: Borrowing money right now is likely to be the cheapest you’ll ever see it!
If you ever want to gauge how the property market is doing here in New Zealand, look to the banks! If you see 95% lending as the norm, they’re backing property all day long as a secure form of their capital security. The lenders here in New Zealand have loosened their belts and eased their criteria. No – they’re not making stupid decisions like they did about 4 years ago about who they’d lend their money to, but they’re being a lot more lenient if you look like you might qualify! Take a punt – Think outside the box even – Get an application together! (Oh…seek the right advice of a qualified Adviser of course.
FOUR: House Prices
I believe Auckland house prices grew on average over 5% last year. They’re not slowing down either. You can scream from your rooftops that this isn’t fair, but that won’t stop this roller-coaster. They will continue to go up. It’s economics 101 my friends: Supply & Demand. We have more people wanting to buy than available properties. Statistics NZ is saying 1 million people will move to Auckland in the next 30 years. The Auckland Council says we need 300K – 500K new houses built here in Auckland in the next 30 years. You think that will happen?!? Where will all these people live? Where will these houses be built? I can’t see the capacity being there – all that this will do is drive house prices and rents up. This roller-coaster ain’t stoppin’. The great thing is that there’s some killer deals to get your hands on if you’re looking in the right area and utilising the right experts.
FIVE: Supply & Demand – Tenants
I kind of touched on this above but with regards to tenants. Look….if you can’t afford to buy, and if there’s not enough housing – You think this will create an over-supply of tenants? Think about it…Or – Better yet – Go to one of those open home rental viewings on the weekend that Agents have decided are the best way to rent properties – See how many people flock to these viewings! It’s crazy – If you’re a tenant looking to rent a new place, take copies of your ID, referral letters, proof of employment etc with you to the viewing! Chocolates, alcohol, cash, whatever helps!
SIX: Rental Yields
Even with the loss of depreciation on the building itself, rental yields are still strong out there. You need to look in the right area and get the right advice on this – but – rental yields are still up around the 5-7% where they should be. Investment property is still the best-performing investment asset out there when we’re talking balanced to conservative type investments (which happens to be the risk profile of most of our clients).
All in all – the above spells affordability to me. If you want to be paranoid, calculate your interest at 7-8%. But, my thoughts are that we’ll be lucky if you go over 7% as an average interest rate over a ten year period….Because we recommend investment property to be a 10-year investment…..but that’s another blog entry.