The year has not begun auspiciously for wannabe house buyers – or for real estate salespeople.
It seems to me as if there is still a measure of uncertainty in the residential property investment market. January sales were right down. Listings are slow and sales are down across Auckland.
There are many possible reasons why this is the case. Buyers are out there looking for homes. But banks aren’t lending and there is still a chronic shortage of housing stock listed on the market. Trump’s abysmal performance as US President isn’t helping to boost confidence either.
So potential vendors are sitting on their hands waiting to see how the cards fall. In other words, we’re still in a holding pattern.
A number of home owners have made good capital gains from their properties over the past few years. Many will have made a $150,000 gain per residential property in the past year alone. So they’re sitting pretty, and feeling very affluent right now. They are anticipating further gains in the coming year and are therefore confident about splashing out on new toys. In one street in Omaha alone I counted 13 brand new Porsches – 12 of them sold by one salesperson! I think it’s called keeping up with the Joneses!
The smart people have secured their retirement income and are capitalising on their investment in their properties. Unfortunately a good percentage of Kiwis don’t understand the benefit of owning residential investment properties and they pay the price when they get to retirement age. Getting started is the first step.
House prices haven’t fallen much in recent months, therefore property remains an excellent investment. Interest rates are still very low and likely to remain low.
Those happy home owners who are making good capital gains are not selling unless there’s a compelling reason for them to do so – a job transfer out of Auckland, a marriage bust-up, the death of a spouse/partner or the sudden need to downsize due to a health crisis or from becoming empty nesters. Otherwise, why would people sell? Why rock the boat? Besides, if you sold and you want to buy again in Auckland, what would you buy? There just aren’t the properties available or the luxury of choice.
Set against this rosy picture of the fortunate ‘haves’ is the picture of the ‘have nots’. An increasing number of ‘invisibles’ in Auckland are not sitting pretty – far from it. The housing crisis and the consequences of population growth and unprecedented levels of new migrants settling in Auckland have led to a rise in homelessness, a shortage of rental properties and a corresponding hike in the cost of renting.
What’s also needed is more low-cost housing so that first-home buyers and those on low incomes can have an opportunity to own their own homes. The number of rental properties also needs to increase.
Going back to yesteryear young families were assisted into their first home by capitalising the Family Benefit, which was used as part of their deposit, and with a subsidised State Advances loan (Housing Corp). This gave them all a helping hand to get into their first home and on the property escalator. The majority of those people stayed in their homes for 4-5 years and then upgraded to slightly larger homes. The spin-off of all this is that the building industry was fully employed and there was no unemployment in the work force throughout NZ.
This system was used throughout NZ and the provinces grew because of it. Shouldn’t the Government therefore revisit the past so we can help solve the housing crisis?
You may be surprised by the number of investment properties owned by the people around you.
- At least 25% of properties are owned by investors.
- Every 4th or 5th home is a rental property.
- 50% of homes are mortgage-free.
- 52% of Auckland properties are owned by Asians, most of whom are long-term residents. On average they each own seven properties.
- A North Shore suburb is currently 90-91% owned by Chinese and Koreans, the majority of whom are nationalised Kiwis, and who may have owned their properties for at least 15 years.
If you want to secure a comfortable retirement then you need to be aiming to buy at least one home and three investment properties before you reach retirement age.
If you would like any further information please give me a call.
Paul Lochore is the owner and managing director of Lochore’s Real Estate on Auckland’s North Shore. He runs regular free property investment seminars.