News | Property
Property outlook for 2014 By Olly Newland
In this article I will take the plunge and make my forecasts for the year ahead. So much news has been coming from all quarters of late that forecasting is a dangerous game, but not to try is avoiding the issue. The actions of the Reserve Bank I have written several times on the previous actions of the Reserve Bank, and I along with many others just wonder what goes on behind the walls in that hallowed institution. The LVR restrictions will drag down some low deposit buyers, but I remain at a loss to see how in the long term these restrictions will be beneficial. One good thing that may happen if the restrictions do bite, is to cramp the style of the Johnny-come–lately spruikers who promise fabulous wealth, no money down, pay off your mortgage, or free advice deals when all but the totally foolish know that there are no free lunches. As I write this the Reserve Bank has announced that personal loans and credit cards no longer have to be taken into account when calculating 20 percent deposits. This means that effectively the LVR rules have been watered down to almost nothing. Anyone with too smaller deposit can top up with personal loans, second mortgages, or credit cards. Interest rates From all sides bleating economists keep calling for the Reserve Bank to increase the cash rate from its current 2.5 percent. Their calls are backed by breathless journalists whose job is to create a fresh shock-horror headline every day of the week without real research. Be careful what you wish for. If rates are increased I would imagine it would be by
as little as 0.25 percent to start with and maybe another 0.25 percent later. Beyond that would be hard to forecast. With Europe in the doldrums, Australia likely to cut rates and the US just lifting, and Japan and China still very benign, it’s going to get very interesting as the NZ dollar risks going through the roof as a result. With competition and borrower resistance it wouldn’t surprise me at all, if actual mortgage rates stayed more or less where they are at present. Of course the building industry would take a knock as buyers hesitate so expect some howls from that quarter. Any interest rate rise will be done more for shock value then effectiveness. It could well force the market to hesitate, but I believe given a month or two, it will business a usual.
been steadily dropping. Properties, that a few years ago would be hard pressed to return a 10 percent yield now sell for sub five percent yields.
Commercial property
In other words investors are paying more and more for the same rental returns.
As we know commercial property (shops, offices, factories) run on quite different rules from residential. A house is worth the same whether rented out or not. The value is influenced mainly by position and condition. Not so with commercial property. The value of any commercial property is seriously effected one way or the other by:
• Rent received • Length of lease • Strength of tenant • Terms of lease
Also note that a paper-thin inflation rate as we have at present risks deflation - the ugly brother of inflation.
• Position
If you think inflation is bad, deflation is a 100 time worse. The slightest knock to the economy could spiral into deflation and aggressive interest rate rises could be just be the catalyst needed.
• Earthquake risk
Maybe one good thing will come out of it all; if interest rates rise, more and more people will choose renting as the cheaper option.
• Number of tenants
Politics Normally I avoid getting into politics but it can’t be ignored in the present market, especially as the heat and light generated by the rising market cannot be ignored, as it is a very major topic of discussion. This is election year and for better or worse the next 6 months will be filled with rhetoric, accusations, threats, wild promises, bribes and exaggerations. This has a destabilising effect on the market - any market in fact - so cool heads are needed. I have been through at least 20 elections as I recall and it has always been the same. Who ever gets into power immediately becomes sober, serious and conservative and all the promises, threats and accusations drift away or are watered down.
Olly Newland
Property Consultant Impartial, expert guidance
For an obligation-free session with Olly, call: 0800 66 22 80 18 April/May 2014 www.aucklandtoday.net.nz
So it will be business as usual for experienced investors and may indeed, create bargains for the canny as the naïve panic and rush to the exists.
• Condition of property • Configuration • Contamination • Guarantees • Zoning - and many more as well. It is quite possible to have two identical commercial properties side by side with the same rental returns, but to have a 100 percent difference in value simply because one has more advantages. Simply put, investors are prepared to pay very much more for the right combination. Therefore with the right advice it is quite feasible to pay, for example, $500,000 for a commercial property, and with a stroke of the pen and some sensible negotiation double the value to $1million without spending any more money - just some patience and good advice. Nothing to do with inflation or luck - all to do with doing your homework first and not guessing or hoping for the best. Because interest rates have been low, the returns from good commercial property have
Summary All the signs say this will be a good year for the economy and this in turn must flow into the property market. The economy continues to be buoyant compared to other developed countries due to our increasing exports of food based products. This in turn is encouraging immigration and a feeling of confidence among consumers which in turn improves the economy even further. The result is that the economy however, is becoming more and more Auckland centric, as jobs increasingly move to Auckland which attracts more yet still. All of this pushes the Auckland residential and commercial property markets along, with supply simply not keeping up with increasing demand. Hamilton is also benefiting from this situation as the real travelling time between the cities rapidly continues to shrink. It appears certain that the main economic drivers being the Christchurch rebuild, net immigration, and continued positive economic growth in China, as China moves more towards a consumer based economy, plus rising confidence and more jobs; all these may play an even bigger role in our economy than ever before. Now is not the time to be distracted by all huffing and puffing of the gloomsters and stirrers. Now is the time to take advantage of the current climate. Remember: It only takes one good deal to change your life for better for ever. With more than 45 years in the property game, Olly Newland provides a consulting and mentoring service for people committed to make serious progress with property investments… whether it be buying, selling, holding or troubleshooting. If you’re interested in knowing more, visit Olly’s webpage at www.ollynewland.co.nz
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