Your February 2020 Newsletter

Where the market is going in 2020.

The main reason this newsletter is a bit overdue is because I have been carefully watching what is happening in the news and comparing that with what is happening in our office. It will be no surprise that my personal predictions will follow just about everyone elses  and  that’s it’s heading back up again. However  this has taken quite some time to materialise. The media predictions were rampant at the end of last year, but at a local level it wasn’t happening. We were still seeing the lower end of the market active, but the higher priced properties were selling slowly. However, this year we are seeing a large numbers of Auckland buyers moving back into the market. My personal enquiry has shifted from predominantly locals to predominantly Aucklanders. We have multiple offers on many properties with a new company record of 10 on the same property.
Last year we saw a two-tier market, where properties under $500,000 raced ahead whereas properties over $600,000 were selling slower. This created a distortion as the lower priced properties were gaining on the higher half and the price gap between them closed. Logic would say that with the new interest in the dearer houses we should see a period of adjustment where these properties re-establish their price difference.

2020’predictions are: –

Continued strong interest in properties up to $500,000 from the first home buyers and the investors. This market will continue its steady 10-12% pa growth.
The higher priced properties will remain at the same level for about three months, then experience a strong upward surge. This is because there are a lot of available properties in this higher price range and these need to sell before there will be upward pressure on prices. We have about three months’ supply depending on enquiry. The market will then surge over the winter months. This market will also see around 12% growth with most of it focused in the second half of the year
Some key factors and points of interest: –

  • We are finding a surprising amount of Auckland buyers who are buying, but not selling their Auckland homes. About 30%. These people have enough equity in their current homes, that they can buy in Whangarei and not sell in Auckland. This is going to have a huge effect on the available Auckland properties for sale and push the Auckland prices up faster, as the already short supply gets shorter. The interest they pay on their new home loan will more than be covered by the increased equity in their existing loan. Not a bad strategy for a home buyer who owns an Auckland home.
  • Interest rates are very low and may even head down a small amount yet. Housing loans are now very affordable, and a $600,000 loan is going to cost you about $386 per week. Compare this to when Whangarei’s average house price was going up at $1700 per week. A buyer keeping their old home and buying another is going to get double the capital gain.
  • Nearly every general election causes the housing market to stall. I will make a bold prediction and say that will not happen this year. Historically most elections are based on a conservative government in power, and peoples fear that if a liberal, left- leaning government gets into power then we will see anti home ownership legislation, such as a Capital Gains tax. As we already have a left leaning government in power and they have stated they will not be introducing a capital gains tax, then there is no threat to home ownership. The worst that can happen is a more conservative government will take power at the end of the year. Therefore, I don’t see people holding off buying due to the election this time around. I have every chance of having egg on my face for this prediction as it will be a first, and historically elections are bad for real estate.
  • Building costs have skyrocketed after the Christchurch Earthquake recovery swallowed up most of the available builders. Builders have waiting lists, and many are pricing work on the basis that they can put a high cost on the quote and can afford to miss the contract. Anyone building will be looking at $3000 per sqm building costs this year, meaning that a modest $160m2 home will cost you $480,000. Add a $350,000 section to that and your new build costs are $830,000. Right now, existing homes are better value, but it will not take long for the current supply to be sold and then these new build costs will set the new prices.
  • Section supply is still at an all-time low. There is an adjustment period when people take time to accept the new section development prices and the new build costs, but when they do these new $400,000 plus section prices will be the norm.
  • The Americas cup will start 21 March next year. Impact on house prices …. none. It’s a great event but has almost no impact on the Real Estate market. It didn’t last time it was in NZ and it won’t this time either. 

Confession Time

Almost 90% of my predictions are proving accurate, right down to the percentage growth, however there are two glaring exceptions.  The first is rents. Two years ago, I predicted that average rents would hit $480 pw by the end of 2017. They are close to that now and there is continued strong upward pressure. Rents in excess of $600 pw are being achieved but the fact is I got it wrong. The pressure was there but the resistance to higher rents has taken longer to dissipate than I thought. A bit like walking through thick mud. Progress was made, but at a slower pace.  The second is Rental ownership. At the beginning of last year, I predicted that many of the mum and pop landlords would get out of the rental market and there may be a small drop in prices. This has proven to be totally wrong. There was a brief flurry of mum and pop investors getting out as compliance costs and landlord requirements got harder, but this was more than offset by first home buyers picking up the properties and interest rates dropping further, meaning people with money were looking for alternative investments. In my defence I did say that if the Government raised the first home buyer assistance ceiling from $400,000 to $450,000 in their budget, that this would alter the prediction and sure enough they did. However, two mistakes are two mistakes! I apologise and will fine tune my crystal ball.

How Fast is Whangarei Growing?

I have been a long-term advocate for growth in Whangarei and have written numerous articles about how it is growing twice as fast as the WDC are planning. The WDC were planning around  less than 1% growth whereas the District Health Boards’ new medical registrations was showing 2% growth. ( WDC have just released a paper saying we grew at 1.57% over the last few years.)  I have read some recent press articles  about rapid population growth in the district inspired by Government  spending:- such as the $800 million infrastructure spend , Ports of Auckland shifting and the Navy shifting , and  figures that say if  the Ports of Auckland  and the Navy shift north the district population could hit 145,000 in 10 years .  This figure is quoted by the NZ Herald as being expounded by the current WDC chief executive Rob Forlong.  Right now it”s  hard to think Whangarei’s can cope with this type of population growth.  It’s not that it won’t increase at a fast pace , but we simply don’t have the infrastructure to allow this growth. Sewage, electricity, roads, bridges, and then we don’t have the builders, electricians, plumbers etc to build all the houses.  We don’t have the time to wriggle through all the red tape in 10 years to create the sections needed. We can handle a population of 120,000  in 10 years, but 145,000 it would be an unmitigated disaster for the city, and we would have homeless people under every lamppost trying to find a dry sewage free place to stand. With optimistic predictions showing an average of approximately 2,500 new people per year for the next 10 years , we would need over 1,000 new houses per year. Currently we are building less than half that. We currently have about 450 sections being developed or in the planning stages , so even if we had the builders we don’t have the available land,  and sections take a lot of time to develop. 
The growth prediction has been  exaggerated and I hope people are not giving it too much credence . Let’s look at some factors

  • The Hunterwasser Building. Magic building and I’m personally glad it’s being built, even though  the reality is it’s going to run well over the given budget (already 4 Million and heading to 8 Million). It’s never going to turn a profit as sold to the ratepayers, and in fact will be a cost on us all for years to come. It will be a great tourist attraction,  but it on its own is not going to pull hundreds of permanent residents into the city. People don’t shift cities because of a Noddy House . 
  • The 800 plus million infrastructure spend. This is conditional upon the Labour coalition staying in power for 10 years or future governments buying into it. Then years and years of planning and resource management consents, buying properties, and dealing with objectors.  Some of the roading may be done reasonably quickly, as the planning was well advanced under the previous government, and the rail line could be re-opened, but most of the spend will be 5-10 years away at a very optimistic guess.
  • The Navy. This is not new. Stan Semenoff tried to get them here during his mayoralty and probably a few mayors before that. It would require a massive infrastructure investment to create suitable land and buildings and at best would take 10 years of preparation, but more likely 20-30.
  • Ports of Auckland. Again, a massive investment in infrastructure required. Most of the 800 million plus will need to have been spent on the big five projects and all the work done, before this concept could even start. So, at best 15 to 20 years.
  • Whangarei is growing and fast, but at The DHB estimated  rate of 2% per annum and allowing for an accelerating growth rate of 3%  we could see a further 24,000 people in the city and district in 10 years. From a base of 96,000 that’s around 121,000 in 10 years.. So, let’s not get too carried away with growth projections. 
  • What we can see now is that restaurants are getting fuller and car parking is getting harder to find. Doctor practices are full and it’s hard to get a new doctor, (a problem recognised by the DHB, who have appointed a recruitment Doctor, whose job it is to find other Doctors for Northland.) Traffic is building up and congestion is a common topic of conversation. Rentals are in short supply and the supermarkets are busier. The recreational walks and parks around the city have more people using them, so growth is happening but 145,000 is a 20 year projection, not a 10. 

Auckland and the NZ Herald.

It is no wonder newspaper readership is declining worldwide. In the midst of a statistically proven shortage of listings and housing in Auckland, ( Barfoots, REINZ, Trademe, Realestate.co) the NZ Herald run with the following counter headline “ Housing U-turn: All of a sudden Auckland has a surplus of homes. (Amelia Wade 12/2/20)”
The article follows a comment made by the Salvation Army based on the last years Census. Yes! that’s the one where 1 in 7 people either partially completed it or didn’t do it at all. (700,000 people) The same one where as a result of the fiasco and independent review, the CEO, Liz MacPherson resigned before she was sacked.
Based on this census the Salvation army reported that the population of Auckland dropped 77,500 people in the last 5 years. They then go on the say this means there are now 7,168 surplus homes in Auckland. The Herald have swallowed this click bait and gone on to make this a morning headline. Talk about 2+2=3. 
Anyone who believes Auckland’s population has dropped 77,500 people hasn’t been there for the last 5 years. They haven’t seen the massive amount of housing construction that is gobbling up land faster than a vacuum cleaner sucks dust. Nor seen the arrival every year of 50,000 new permanent migrants, who mostly settle in Auckland. And what about the 40,000 estimated shortage of existing housing stock. I am sure the Salvation Army have a good purpose in using this statistic, but surely the NZ Herald don’t believe their own headline.

Tammy’s Rental Areas

I have published three newsletters where I have made comments on where to buy rental properties in Whangarei. Our rentals Business Development Manager, the very lovely and smart Tammy Drinkwater, has written her own summary of areas. For those wanting to see this follow the link to her newsletter. If you are a landlord, you should get on her database as she puts out very good material. click here  to see her newsletters

Contents
• The Current Situation in our Office
• Section Development Down
• Finding lions in Africa!
• Super low Interest Rates and Job losses.
• Banks Being Kind.
• Number of listings
• Changing Patterns Due to Low Interest Rates
• My Old Enemy the Media and Job Losses.
• Hiding in the Invisible Future
• Debt levels
• Making New Money
• Effect on Assets
• The New Migrants
• Election Year
• A Close Relative 
• Prediction
• The Two World bubbles.
• Can You Help

I pride myself on making accurate market forecasts of where the Real Estate market in Whangarei is going next. Over the past 35 years I have had past patterns to call on to predict the future. This market is unlike any we have ever seen before and therefore there are no patterns to look at, or follow. It is a big mistake to look at past recessions and say this one will follow the same patterns as this one has its own set of rules. Personally, I have felt the market is too uncertain to make a prediction, however I am being asked for some guidance now, rather than when the dust has settled.
It is the middle of winter and we would expect the market to have slowed down by now. What we are seeing is a property market behaving more like in a boom market than a recessionary market.
We are only a few months off an election, but instead of the market pausing for the election we have lots of sales happening. This is unusual. 
There appears no doubt the economy will hit a recession. The question is, will this recession behave as past recessions have.
Below I will look at the key factors and make an assessment for Whangarei based on the evidence I am looking at.

The Current Situation in our Office

Many owners are taking a wait and see approach. Listing numbers are building but a slow rate and are not keeping up with demand. We we are seeing active sales and are pretty much back to pre-covid levels. We would be selling more, but as there is a shortage of good properties and we have a supply problem.  Buyer inquiries are up in most areas and price ranges. 
 We are back to having multiple offers on most reasonably priced properties with one property recently having nine offers on it. 3-4 offers on one property are common. The sales are 90% in the $350,000-$650,000 price range with only the occasional higher sale. Higher priced rentals ($550 plus) are taking longer to fill, suggesting there is some resistance building in rental price  increases.  

Section Development Down 

Many of the building companies have had their development money pulled by the banks. This has happened in the past and will result in a shortage of sections in 1-3 years. The catch-up in total housing numbers that has been happening across the country will stall and once again we will see pressure on existing house prices as the supply of properties falls behind the demand. It is like one of those frustrating dreams where we are always chasing something but never quite catch up. We are still well behind the amount of houses our population size requires. (40,000-50,000)   The result is likely to be continued upward pressure on prices.

Finding lions in Africa!

If you are on Safari and looking for lions in Africa, you first look for the vultures. They are circling high in the sky either waiting for a wounded animal to die or for the lions to finish feeding so they can pick the carcass. In real estate we find the bargain vultures come out every downturn. They are easy to recognise, because they are looking for wounded or stressed out sellers, and they make low offers. They use words like:- “ we are cash buyers “ “and the market is stuffed” or “we don’t want to insult the owner but this is what we would offer” ( Invariably very insulting) or “the owner would be  foolish to turn this down” . These people will look at lots of properties and make lots of low-ball offers hoping to meet a stressed seller. Today these people are out in force trying to talk the market down. They use the media reports of massive price drops to justify their low offers. They are trying to pick up a bargain at someone else’s expense.
I have seen this scenario many times before. This time around I think we are going to see lots of starving vultures, certainly for the next 6 months at least.  I remember taking a well know economist to lunch after he made a low-ball offer on a property. Over lunch he explained all the perfectly valid reasons, (supported by graphs and charts and free form diagrams,) as to why the property market was overpriced and heading down. He was so certain of it; he had sold his own home and was waiting for the catastrophe to occur. The year was 2003 and sure enough he was right! Just five years later In 2008 the property market dropped all of 7% after a record 100% rise from the time of our lunch in 2003 to the 2008 global financial crash. After he had sold, and while he was eagerly making low-ball offers based on his graphs and charts, the average house price had doubled in value. 

Super low Interest Rates and Job losses

There is one key difference between this forthcoming recession and all the others. Low interest rates! . You can borrow for around 2.6% and there does not seem to be any threat of rates going higher for many years to come. That means a $500,000 loan taken over 30 years is going to cost you $461.68c per week to repay.Consider that it will cost you around $480-$520 per week to rent the same home.You have to ask, “why would people have to sell.” “Because they lost their jobs” the Vultures eagerly squawk!  Well yes there have been substantial job loses,  and probably more to come, and these are affecting many families in serious and concerning ways. However, some 43% of homeowners have no mortgage at all so you can take these people off your kill horizon. The average mortgage is over 10 years old so was taken out when property prices were half what they are today. Therefore the $500,000 borrowed today was only $250,000 when borrowed 10 years ago, and the repayments on that are around $280 per week. Most families today have two incomes so can survive for short periods of time if required, and there is substantial government hardship support. The people most affected by this crisis are the people in the Tourist sectors. That is the tourist towns like Queenstown, Rotorua and Paihia. And the people most effected are the minimum wage earners in those cities, most of whom do not own a house. The last time I was in Queenstown I was noted  that every person who served me, be that in a shop, a restaurant, or a service,  had an accent. I would ask them where they came from and the answers were Brazil, Peru, Ireland, England, Italy, and many other parts of the world. Not one was a Kiwi. They were on working holidays earning their daily keep. Tony Alexander has summed up this scenario in a few quick sentences; “Heading into the 2008 recession 4% of our workforce were people on a working visa. That now stands at 8% and such visa holders have accounted for 25% of the net job’s growth in NZ over the last 10 years. These people are not property owners.” Think about that for a moment. We may be heading toward double figure unemployment from the low figure of 4.6%. 8% of our current workforce are overseas people on working Visas. 10-12% job losses suddenly do not look so bad. This adds to the question “Where are the super stressed sellers going to come from?”

Banks Being Kind.

This crisis is a medical crisis. It is not caused by poor lending policies and zero or negative property equity. The banks are financially healthy, so do not have to recover loan money to save themselves. Even better, Banks are inviting short term accommodations like interest only loans to get people over the hard times. Interest only over a $500,000 loan is $250 per week. You can even get a complete mortgage holiday where you do not have to pay any mortgage at all for a time, (I do not recommend this unless there is no other option) . So where is the pressure to sell going to come from? 

Number of listings
Another biggie from Tony Alexander’s observations, is that in 2008 we had 58,000 homes listed for sale. Today we have just 19,000. There is a severe shortage of properties for sale and a growing buyer demand. If there is any slowdown in our local  market it is going to be because we do not have enough listings and that is going to put upward pressure on property.

Changing Patterns Due to Low Interest Rates
In a previous newsletter I mentioned that the number of people who were buying a home and keeping their old home had risen dramatically. The low interest rates often mean you can buy new and keep your old house, rent it, and have the tenant pay the mortgage. A simple way to get into the rental market. We are also finding landlords withdrawing properties from sale, because the interest rates are so affordable. The result is more pressure on listing numbers.

My Old Enemy the Media and Job Losses.

The media should carry a health warning just like a cigarette pack. “Ingesting this material could be damaging to your Health “. The standards of reporting have dropped so low. Investigative journalism is rare and so much media information is based on the reporter following social media reports like Twitter and many of the reports are used to prove a story line, rather than have the story based on the evidence.  A glaring example of the Media sensationalism was the 1000 jobs Fletcher’s are shedding. It’s reported as being a result of COVID 19, but it’s not! Fletcher’s where is serious trouble in 2018 with a loss of $660 million in its Building and interiors division. Fletcher’s employ 21,000 people across all its divisions and like any sound business had to cut back to survive. They cut 4.7% of their workforce. That is equivalent to a company of 40 people cutting one job from its payroll. Fletcher’s had to reduce overheads including jobs based on its 2018 and 2019 performance, not Covid as reported. Many companies have taken the “Covid opportunity” to trim their fat and I would suggest that around half or the total job losses (excepting tourism) are simply businesses trimming their overheads and using Covid as the excuse. Locally we are about to witness some changes at the Marsden Point Refinery. They are going to rationalize the operation and may well end up closing the production side of the company, and there will be job losses. It will get blamed on Covid 19,  and admittedly the refinery will be affected by the airline cutback as Jet fuel is a big earner for them, but this restructure is a long time in the making. The refinery has only been borderline profitable for some years now and a rationalization was coming anyway. It is cheaper to buy refined fuel from overseas than it is to refine it ourselves. The changes in the refinery were going to happen anyway. Just as an aside …don’t forget that our petrol price is driven up by the Governments outrageous $1.03 tax* per litre tax on fuel. (aa.co.nz Petrol tax $0.73 c plus GST on total at $2.00 per litre). About half your petrol bill is Government taxes!!!  Rationalizing  the refinery is the right move as Fuel as we know it is changing. Volkswagen have just joined the rapidly growing electric car movement by declaring its Zwickau factory has produced its last internal combustion vehicle as they transition to electric vehicles. The year 2021. (next year) is when electric vehicle prices are predicted to match ICE vehicles and they will only get cheaper from then on. It makes little point to keep a dinosaur industry such as Oil Refining  going in a small country like ours going, when the future of fossil fuels is limited.
Hiding in the Invisible Future
Public enemy #1. the media have ignored the facts that property prices have risen since Covid lock-down and continue to report anyone willing to predict a property crash. With the current wave of data proving them wrong they have moved into the grey area of tomorrow. The imminent recession will come September, October, and November. This is just too convenient. If you make predictions into the future, then facts cannot prove you wrong. It is a certainty that our economy is in a struggle now and things will get worse and we will have some form of recession. It will probably get worse next year, when the election is over , but the problem is that this coming recession is like no other  recession. All the current rules do not apply. I see some economists are pushing the main impact of the recession out to 2021 now. Again, I don’t think anyone knows what will happen. Logic says we are heading into hard times, but the current evidence is saying differently. I drove from Whangarei Heads through town out to Ngunguru on Sunday and just about all the for-sale signs I saw had a SOLD on them.

Debt levels

In past recessions the debt level has been predominantly carried by individual persons through borrowing. Our personal debt level is at record highs but most of this is in housing mortgages, which many will argue is an investment rather than a true debt. Today the government have shouldered the lion’s share of the new debt with its 60 Billion budget this year. The 60 Billion budget is a Government debt, and not individual debt. You and I wont lose sleep over our new debt levels, but the minister of Finance Grant Robertson may! Unless he could magically make some more money!!! Magically Making More Money Unlike individuals, Governments can create money through their Reserve Bank to stimulate the economy and pay back debt (Quantitative Easing) which is exactly what Grant Robertson has said they will do.It has taken me a while to get my head around this concept but here is an example from England of how quantitative easing works.  “The Bank of England purchased financial assets, almost exclusively government bonds- from pension funds and insurance companies. It paid for these bonds by creating new central bank reserves (this is the created money) and is the type of money that banks use to pay each other. The pension funds would sell the bonds to the Bank of England and in exchange, they would receive deposits (money) in an account at one of the major banks. The bank ends up with a new deposit (a liability from it to the pension fund) and a new asset, Central bank reserves at the Bank of England.
Quantitative Easing therefore simultaneously increased A) :- the amount of central bank money , which is used in the system that banks use to pay each other, and B):- the amount of commercial liquidity ( deposits in the bank accounts of people and companies). Only the deposits can actually be spent in the real economy, as central bank reserves are just for the internal use between banks and the bank of England” (positivemoney.org)
Effect on Assets
What impact does this creation of money have? Firstly, is spreads the financial shock over several years rather than having it all in one year. Secondly it creates a big supply of money into the system which boosts the economy, but devalues money as there is more of it in circulation. If money is worth less, then the things it buys are worth more. Traditionally this is the cause of inflation, however for now inflation is a thing of the past, and even countries like Japan who are actively printing money to get inflation, cannot get it rising. But what does rise in price are assets. Assets like property, gold, and to a lesser extent shares. The equation is simple. (More money + the same amount of property(assets) = rising prices.)
The New Migrants
We have the huge number of Kiwis returning to NZ. The Covid crisis is not going away anytime soon so our people are coming back, and they are buying property. Statistics NZ estimate that 21,000 New Zealanders returned home during December – March and that is accelerating. The quarantine facilities are talking about 2,000- 3,000 new arrivals per week, most of which will be Kiwis. Many of these people have come home for good and will be able to buy a home. Statistics NZ also estimate there are a further 800,000 New Zealanders still living overseas, so the pool of potential returning Kiwis is very large. To put that number in perspective , that the total population of Wellington, Hamilton, Tauranga and Whangarei all in one. 

Election Year

An election year is usually a bad year for Real Estate. In a previous newsletter I said that I did not think this would be the case this year as the worst-case scenario is moving from a left-ish government to a right-ish government so no major worries for homeowners. Being an election year, I think we will see some major pushes on the job and economy front and as many negative recessionary effects are going to be delayed until after the election.  The government is going to be pushing companies to retain jobs so the overall impact,  while severe, will not be as bad as many are predicting and thus we are seeing the new predictions that the full impact of a recession won’t hit until 2021.

A Close Relative- 

…. drives trucks for a big national trucking company. During Covid the company reduced the guaranteed driving hours from 40 per week to 30 per week in anticipation of less work. My close relatives experience was  NO drop in hours. He still regularly drives 40-50 hours a week.  The fears of a slow-down were worse than the reality. Many firms have paid the government wage subsidy back as they have had no drop in work. While the predictions have been dire, we are seeing a lot of evidence that the situation on the ground is not as bad as expected.

Prediction

So back to the circling Vultures and the dire media led predictions about property prices. This crisis is very  different from any other. We have healthy banks, who have a big safety level built into their house lending and very low interest rates. Listing numbers are dropping from an already low level and demand is increasing. To get housing prices reducing you have to have stressed owners, who are forced to take a lower price or lose their  home. You have to ask the question. “Where is the financial pressure to sell going to come from? When is the Bank pressure to force mortgage sales going to arise?  Where are the super stressed sellers going to come from?  On the reverse we have upward pressure as more buyers enter the market and an already existing shortage listings. Prediction # Its too early to look at 2021 which could be a very different year,   but the current evidence for the rest of 2020  shows the Whangarei property market  remaining steady and probably rising .  

Roll on the Vaccine.

Unless we get a vaccine, we are heading for two different worlds. A world that has come to live with Covid and a world that has contained it. The smaller of the two worlds will be ours. The island nations that have a big moat around them and have either contained or eliminated Covid.  The bigger of the worlds will be those that have lost the containment battle and now live with the virus. In Qatar 3.3 of every 100 people has or has had the virus. In the USA they are closing in on 1 in every 100 people had or having the virus. In Brazil it is 1 in every 160. At this stage you would have to say the battle is lost in these countries.  At best they can slow it down , but their chances of elimination are long gone.  They are going to have to live through the crisis and in terms of numbers the virus has only just started. In the USA over 99% of the population have not had it.  The only way they can win this war is with a vaccine or effective treatment.  Until there is a vaccine, we will have two bubbles. Those with and those without. Unfortunately, we will be in the smaller without  bubble, but fortunately,  we are only small ourselves and don’t need a big bubble to survive. It doesn’t mean we can’t trade outside our bubble, it means we can’t visit each other and therefore overseas tourism is going to be in trouble for a time to come. A vaccine or effective treatment will join these two bubbles together, however while I hope a vaccine will be found within the next few months, the reality is that this is a corona type virus. The common cold is a corona type virus and we don’t have a vaccine for that.

Property market and the Corona Virus.

  • The Bug
  • The economy
  • The effect on property
  • Future bugs a certainty
  • Future economic changes

You are reading my fifth  attempt to write this newsletter. Every 24 hours I have gone back and edited it again because the changes are happening so fast. The day you get this I’ll be having regrets as something will have changed, or been clarified since writing. But as they say “Fools rush in where Angels fear to tread”. So true to form: – Below are a selection of facts, alternative facts and opinions on the virus and its effect on the property market. Keeping in mind we have never had this strain of bug before and in my 35 years of selling Real Estate I have never dealt with this before, so its all new ground.

This strain of bug before and in my 35 years of selling Real Estate I have never dealt with this before, so its all new ground.

The bug undefined

  • We have had many previous out of control bugs:- Polio, measles, chicken pox, Mumps, Influenza, Colds ,Ebola and many more. As humans we survived them all and will do so again. But Covid 19 is only a precursor and forewarning of more bugs to come. 
  • The Chinese contagion looks like it has been controlled and is currently in decline. It is a military state, so enforcement of restrictions may be easier than in the west. Many of the previously closed highways, cities and factories are re-opening. This is just 3 months after the first reported illness at the end of December. Around 70% of the people who were hospitalised in China are now recovered. Spain and Italy are showing signs of the infection rate declining , so this will have an end. 
  • Our lock-down will isolate and localize infections. I have no doubt it is the right thing to do, even though I share the frustration of many at the self-righteous and often ignorant human beings who will flout the rules.
  • In times of War, necessity means that technology leaps forward at a much faster pace than in times of peace. Covid 19 is a viral war against humanity and as such vaccines will be developed much quicker than in times of peace. Especially as China now has around 80,000-100,000 recovered people with effective antibodies to study. The timeline to develop an effective vaccine will be shorter than the 18 months being touted and most likely  3-4 months.
  • Old fashioned Quinine (anti Malaria treatment) has been touted as a preventative measure. The sales of Gin will increase as people test this for themselves. Meanwhile a man has died in the USA after listening to Trump and self-medicating with Chloro-quinine. In fairness Trump was right, he won’t be getting Covid 19.
  • We are an Island nation with easily protected borders and as of today only have a minor semi-controlled community outbreak, unlike China, Italy, Spain, the rest of Europe and the USA. We have been very lucky so far and we can stop this thing. But we need the majority of the population to obey the lockdown rules. We need to have confidence in our health system that they can track the virus spread and conduct the right tests on the right people at the right time. It is unfortunate that out only death to date was misdiagnosed as Flu. There is a big gap between talking pretty words in parliament and the actual implementation of the legislation. 
  • If there is going to be a rebel group, it will be the young. They usually have symptoms milder than a cold and let’s face it, they have the most to gain by a shift in power from the old to the young. Let’s hope they remember they have parents and grandparents and remain glued to their screens in what must be a continuation of a type of self-isolation they are practiced at already. 
  • Let’s look at what this virus is actually going to do. It’s basically going to leave our youngest kids alone. It will hurt some of our millennials, but most will be fine. By the time you are hitting fifty your personal risk factor will be increasing. Sixty and you have to be extra careful, seventy your chances of dying are about 7-8% IF YOU GET HOSPITALISED!! Remember about 87% of people who get it will recover at home without hospitalisation. 80 plus and your chances after hospitalization are about 15% of dying. If you have a chronic illness and have a weakened body or immune system you have a greater chance of dying. (in China a 100-year-old man has fully recovered from the virus)
  • So, while the personal picture is very scary, the actual impact on the planetary population of 7 billion will be small.

The Economyundefined

  • The virus will have a devastating  effect on the economy in the short term, because of the necessary actions required to control it, but it may be short lived 3-4 months.
  • The real issue is the recovery time. How much has the economy been damaged and how long will it take to get back to where we were. Factories don’t just push a button and start again. Transport requires a lot of logistics and supplies to operate; how long will it take to get these moving again. Tourism may never fully recover. Confidence is a big driver and until that returns the economy will stagnate. The recovery could happen quickly or take a decade. 
  • While the effects will be global, this is not a financial meltdown. The global economy could recover very quickly after the virus is either contained or sufficient people have been exposed to it and recovered with immunity.  The “herd effect” where enough people have immunity to stop the spread. So, imagine if it was all over by August, September and October. In New Zealand this could be the end of April or May. It is conceivable that we could be fully trading with China by August. 
  • The virus shutdown will not be fully over until  an effective vaccine is developed. Until then we will have two separate worlds. One where countries have controlled the spread of the virus through social isolation, and one where the virus spread out of control and the population have immunity through having survived it. It looks like this divide will be rich nations versus poor nations. The continents of South America and Africa look like they will head the out of control route. Thereafter the only way the “isolation” nations can keep the virus out of its protected, yet vulnerable people, is to keep the inhabitants of the “immunity” nations out. Therefore tourism in New Zealand will be a dead duck until the vaccine is developed. The development  of the vaccine will be the start of normalisation. 
  • We will see jobs go, but New Zealand is probably in the best position it has ever been in regarding employment. We have around 4% unemployed, with many industries unable to find NZ workers. We currently have thousands of imported workers in the agricultural and horticulture sector, the building sector, and the transport sector. We have a lot of available jobs in the country simply by sending the imported workers home. (Many employers will resist this as they have found their imports are way better than the locals.) . New Zealand has some fat in the employment market. We can absorb several thousand job losses.
  • This recession is different from any other. It is not being driven by bad economic circumstances, nor an ailing economy. For a great comparison of the major differences have a look at Tony Alexanders newsletter

The Effect on Property

  • In times of crisis there are two major fall backs. Gold and Property!. 
  • In every financial  or global crisis we see the gloss disappear off Shares. Prices drop as they are doing now. Shares in a time of crisis are a poor investment Shares are your slice of other companies and as such are subject to global disasters.
  • They  rely on a growing economy. People won’t  pull their money out of shares as its too late, but they won’t be heavily investing in shares for a while either.
  • Gold has to be rising in value for you to make money and at $2631 per ounce it is just about as high as it can go.  Gold has averaged around $1,500 NZ for the last 3 years, so it would take a bold person to buy now expecting further significant increases. Meanwhile it doesn’t earn any income for you. It has to go up in value to make money and gold  is notoriously fickle. You  have to pick the up cycle and sell before the down cycle. Gold is basically gambling.
  • Property is more stable and has historically had  a steady capital increase. It’s something people simply can’t do without, unless they have a large livable boat, so its’ value remains high as long as there are people in this world. It has value while you hold it, be that rents or your personal ability to utilise it for food or other resources.
  • There is no long term financial  comparison to property. and there is nothing like a world-wide crisis to illustrate this. 
  • Interest rates are at an all-time low, so housing is more affordable than ever. In previous recessions we have had high interest rates so when people have lost their incomes, they have been forced to sell their property, often at a bargain price and rent. Today a $500,000 mortgage will cost you about $517 per week to repay. A three-bedroom home to rent will cost you about $500 pw.  The figures to own as to rent are nearly the same. This time we are not going to see the mass of mortgage sales that we have seen in previous recessions.
  • There is no incentive for people to keep money in the bank. Over the last three years we have seen a growing trend of people pulling money out of banks and putting it into rental investments. This will accelerate as interest rates drop. 
  • Lots of people with NZ passports are going to return home. We see this in every major crisis, be that war, pestilence or financial crisis, … Kiwis come home.  Some to raise their kids in a safer environment along with their foreign-born partners. These people will be financially better off than the average Kiwi and they will buy property. They will be a major driver in the  dearer price range.
  • Australia hasn’t treated the 650,000 New Zealanders living in their country very well. They are second class citizens in a country they may have lived in for 20 or more years. We will see a lot of these people either having to return due to financial hardship or choosing to return because they realise they are expendable non citizens, who are being treated very poorly. 
  • Rural and country living will grow in popularity. People will want the safety of greater isolation and a greater ability to grow their own food. Lifestyle blocks will have a resurgence in popularity. Think of the people who have had to self -isolate in a 40-60m2 high-rise Auckland apartment. The first 24 hours are going to feel like a week, the next like a month,  and after 4 weeks they will literally be climbing the walls. That urban, coffee and wine  culture lifestyle is going to look a little bleak!. People are going to want to be live in an environment that allows enjoyment of the outdoors and space to roam. Animals to talk to and fruit and vegetables to grow.
  • People will want to get out of the big Cities and their hotbeds of disease. There will be increased migration  out of Auckland, Wellington, Hamilton, and Christchurch,  places with high populations and international airports. This  movement won’t impact places like Auckland with its 1.5 million people, in fact they will hardly notice it , but if just 2% of these people decide to move to smaller rural places that will be 30,0000 people, over  half of Whangareis’ current population.
  • Property prices will at worst stay steady during this crisis and most likely will accelerate after it is over. Places like New Zealand, surrounded by water and easily protected, will have huge appeal to all people, Kiwis and foreigners alike.
  • This demand will further accelerate if there is another viral outbreak, and as I have said earlier, this is just a matter of time.
  • Off-setting this is the actual physical ability of people to look at properties. With the lockdown it’s impossible to physically inspect a property. The banks have shut down mortgage processing, the valuers and builders are locked down, LIMS are unavailable, and you can’t shift in or out of a house. Lawyers cant do the Anti money laundering requirements,  so basically the market will stop for the length of time during the shutdown. But once the lockdown is finished there will be a flurry of activity.
  • First home buyer   Kiwi- saver investments have dropped along with the share market, so less first home buyers are able to meet the deposit requirements. This will have little impact on the first home buyer market, because there are so many of them. Kiwi saver was introduced in July 2007. You had to be in it for three years to qualify to use some of the money for a home deposit and the amount you could withdraw maxed out after 5 years. Subsequently for the last 10 years people have qualified and been using their Kiwi saver to help with the deposit. While many have been successful and are in their homes, there is a considerable backlog of qualified first home buyers who have been unable to find a suitable and affordable property. So much so, that the drop off in this market will not be felt. Instead of having fifteen suitably qualified first home buyers per property we may only have seven. The longer you are in the scheme the more deposit you have, so those desperate to buy a house may have wait a bit longer or drop their price bracket a bit,  rather then drop out of the market.
  • Investors will head back into the market in increasing numbers looking for properties below market value. They may have slim pickings. We recently sold a property in Otangarei for $390,000. When I arrived in Whangarei in 1991 you could pick up a property in this suburb for $20,000-$30,000.
  • The Government has been at pains to protect all New Zealanders, both financially and economically. There will be considerable financial pain, but the effects of this are being minimised by the wage’s subsidy and the mortgage holidays and other accommodation.

FUTURE BUGS A CERTAINTY

The Covid 19 virus is only the precursor to other bugs that will develop and try to eat us. Humans are such a big untapped planetary food source. Viruses have been around for a lot longer than we have. It is inevitable that something is going to find a new way to harvest our nutrients. And what better adapted creature than a virus, which can reproduce thousands of times a day, and using our bodies, spread itself through our breathing and social processes. It can mutate faster than we can vaccinate against it. We will have more of these types of bugs coming.

But we will be better prepared for the next one. We know what to do now and how to contain it.

Most of the future bugs will be contained close to where they originated.

Future Economic Changes
  • This virus will have a long-term effect on peoples’ thinking about the way the global economy works. Economies today are dependent on being able to grow internationally. That means they need a growing market to sell into, a worldwide marketplace. We see the evidence of this with all the free trade agreements negotiated in the last 10 years. But are worldwide markets the best strategy for a country?  This virus may be the beginning of a reset where countries look more inside their own borders for growth. 
  • Through necessity people have moved more towards home-based self-sufficiency.  Old fashioned baking is back in vogue as are walks with the family and board games. The home environment has become more important. Isolation and avoiding people outside the family bubble has a new emphasis. People will dine out less and some values such as appearances may change. We will see less waste, such as that generated in the restaurant and dining industry. The green movement will flourish.
  • People will holiday more in their safe havens (NZ) so we will see more internal tourism.
  • NZ will still be seen as the clean green country that it is,  and will still be seen as a tourist destination, but we will need protect our shores better than we have and may not want as many of these risky tourists, many of whom totally ignored the isolation requirements when entering the country. 
  • Tourism as an industry will probably decline and it would be foolish to rely on the tourist dollar like we have. We need to promote New Zealand  to New Zealanders more. We will see the end of the reliance on the tourist dollar and the end of international global travel as we know it, certainly, to the extent it is now.
  • This bug may be the beginning of the end for the current financial system based on economic growth. It is unlikely the existing financial global system, where countries export to each other, will last long term. There is likely to be a movement towards more ecologically sound self-sustaining economic systems. Economies are likely to head internally rather than externally. The export dollar will become less important as it brings so much potential risk with it. This will be short term initially but may gain a stronger foothold going forward, especially among the younger generations.
  • It’s a time the world can reset and head in a slightly different and most likely greener direction.
  • Countries will move towards nationalism rather than globalism. What happens in our back yard will be more important than the worlds backyard.  We will want to be able to lock the gate at any time, with the right people on each side of the fence and have a strong enough internal economy that we can survive without the shocks.
  • We as a country will have a lot of new debt. We will have to pay that back either through our money being worth less, or through taxes. The piper will have to be paid and from what we have heard a lot of this will be by “Quantitative Easing “. Printing money. This should result in some inflation, although it hasn’t yet in countries that have tried it. ( USA, Europe and Japan) , but  never the less it should do!  You print more of it and the value of what is there declines because there is more of it! Seems simple enough. 
  • Which brings us back to property, the only sure fire hedge against inflation. 

Future Economic Changes

Email me if you have anyone that wants to be on my database and who will be interesting in receiving this newsletter on a monthly basis.barry.joblin@harcourts.co.nz or go to  My blog

August 2019 Newsletter

Contents

  • Update on My Daughter-in Law.
  • House price Drop in Whangarei.
  • Rental Prices Jump.
  • Are Markets Signalling a Recession?
  • What Does That Mean for You?
  • House Battery Technology Versus Car Battery Technology.
  • How I Became a Volunteer Policing the Anti Money Laundering and Terrorism Act
  • Tips on Saving Tax Dollars. My revenge!!

.

Update on My Daughter-in Law

She is at home with her family and feeling a lot better as she travels the slow road back to full health. It will take time as Sepsis is the result of Septicaemia (Bacteria) getting into your bloodstream. Your body reacts by shutting down your organs to survive and the bugs together with your own immune system can turn on your organs and damage them.So many of you have sent your best wishes and we all feel humbled by your concern. Thank you.

House price Drop in Whangarei for the first time in years.

Average prices dropped by $500 June to July with the current average price for Whangarei being $547,711.  This is a very small drop, but well worth watching over the next few months. If it continues then we will be seeing the market dropping from its peak.

The most likely cause is the increasingly large number of smaller sales to first home buyers and nothing to worry about.

Rental Prices

The average rent for our companies’ rentals is now sitting around $455pw. This is a significant rise on earlier this year and shows how the limited supply is pushing rents up. Our rental team have been recommending rent rises for some time now only to have many landlords reluctant to raise the rents and have chosen instead to keep them below market. With the increase in compliance costs, recently introduced by the Government, rents have risen sharply as landlords take the opportunity to recover costs. Tenants are paying $40 more per week now than they were at the beginning of the year. Funny how that works eh!

The lowest priced property rented with Harcourts is $260 PW for a one bedroom and the highest is $580 PW. The highest demand from tenants is for a three-bedroom, one-bathroom home around the $475-$500 pw range.The number of written applications is down to around 40 pw, but this reflects word getting around that we are very fussy in our client selection.

Are Markets Signalling a Recession?

While this topic is beyond my specialist knowledge I have never been short in having an opinion. I am a keen observer of the financial markets  and believe the signs are now clear. A recession is coming!   Real Estate is a safe place to have your money in a recession as long as you don’t have to sell in a hurry.  NZ be is in a better  space than most to ride it out and we could even  see buying pressure in this one.  Worldwide the indicators are bad. (Source Andrew Walker BBC World Services Economics Correspondent.) 

  • Inverted Yield Curves. These words are gobbledygook to most people, but they are important indicators to everyone. Basically, an ” Inverted Yield Curve”  is about a Government borrowing money. They borrow it mostly from their own or another countries citizens , usually via your bank or financial advisor. They are called bonds. They promise to pay it back in a set number of years plus interest. An inverted yield curve is when it is cheaper for the Government to borrow money for 10 years than say 2 years. This means the savvy lenders are saying there is higher risk in the short term and it’s safer to lend the money over a longer term. Historically  Inverted Yield Curves happen before a recession. The USA and the UK are both showing these feared curves in their bond markets now.  
  • Global Trade Conflict. The trade war between the USA and China is affecting every corner of the world. Trade conflicts can lead countries protecting  their own interests rather than trading freely with other countries. The last time we had countries abandoning Global trade and concentrating on their own markets was the start of the great depression of 1929.
  • A “No Brexit” deal with the UK pulling out of the European Union will plunge both the UK and the EU further into a financial crisis.
  • The USA, China, Germany and England have all recorded financial slowdowns for the last three months.
  • The stock markets in the USA, Germany and the UK are having wobbles where there are sudden selloffs and then recoveries the next day. This indicates  nervousness and the possibility of panic selling.
  • German Bond markets are in negative territory. That means the money Fritz lends to the government reduces in value while it is lent. Fritz lends his Government $1000 and gets $990 back.
  • Our Reserve Bank has signalled they fear the worst ahead by dropping the official Cash rate to 1%. Twice the drop the markets expected. 

What Does That Mean for You?

  • The World going into recession doesn’t always  mean we have follow. It’s highly likely that we will, but we navigated the last crash in 2007 without disastrous results, thanks to some very clever stewardship by our government at the time.
  • A global financial crisis is not by default a NZ financial crisis. 
  • If we do go into recession then there will most likely downward pressure on house prices HOWEVER  there is a key difference this time around and that’s interest rates. The last few times we hit bad times; interest rates were very high by comparison to today. Those that couldn’t afford their mortgages were forced to sell at any price.  Banks sold people up in forced mortgage sales and these sales set new low prices, from which other properties were priced, thus creating a downward spiral.
  • From our experience Banks are very reluctant to force a sale and only do so when the borrower has either abandoned the property or gone all septic and refused to co-operate. Banks go out of their way to make the loan work for both parties, so most forced sales today are because the borrower has completely abandoned their responsibilities.
  • The current low interest rates mean most people who were able to afford to buy a house in the first place will be able to afford to keep the house, so we shouldn’t get the forced sales of past recessions. 
  • Rents are way higher now and rising, interest rates are way down and dropping, so the option of selling the family home  and reducing outgoings is going to be limited. Why sell your current house with its fixed or dropping mortgage payments,  to rent a house where the payments are going to go up every 6 months.
  • Jobs. We are currently at our lowest ever unemployment rate of 4.3%. This means we have a serious oversupply of jobs and serious undersupply of workers. This means that if thousands of jobs are lost through a recession, there is a lot of fat in the system and the unemployment rate would have to rise to 7-8% before the ordinary employable people started struggling to find employment.
  • Alternative income sources. Because there is such a shortage of accommodation NZ wide, owners can rent out a room for around $180-$220 per week or provide an Airbnb service. This income together with the low interest rates will make a significant contribution to a mortgage.
  • The first home buyers are coming onto the market in increasing numbers as their Kiwi Savers qualify for home ownership. The cost of renting and the cost of a mortgage is closing fast so there is little reason to stay renting unless you have to. Thus, the lower end of the market has a strong driving force that will continue through a recession. As long as the lower end is selling there will be a flow through affect to higher priced properties.
  • As interest rates drop, people with money are choosing to re-invest their money and a lot of that is going into housing. So we could see more buying pressure than less. 
  • Word of Caution. In a recession there are two types of property that tend to be adversely affected. The luxury market such as holiday homes/Baches and Strata Title properties such as high-rise apartments.

In summary I think a Global recession is very likely and within the next 12-18 months, and we in NZ will feel the pain, but we will come out of a recession far better than most countries and may even scrape through through without joining the recessionary swamp. While the market will slow, we should survive it without significant price drops and in specific price ranges ( $380,000-$500,000) we may see a rise. 
Real Estate and Gold are the places to be in a recession. 

Real Estate and Gold are the places to be in a recession.

House Battery Technology Versus Car Battery Technology

 I read an interesting article recently about the difficulties of using car battery technology in house batteries. This led to watching a YouTube clip about the Redflow Z cell battery. The Company owner  says the difference between car batteries and house batteries is the difference between a sprinter and a marathon runner. The sprinter needs heaps of power for short fast runs, while the marathon runner needs consistent power over a longer term. The “Flow Battery” is a technology where power is stored in the form of zinc on a plastic plate, very similar to galvanizing steel to prevent rust. The batteries work by pumping a Zinc Bromine solution over plastic grids. Through electrolysis, the zinc coats the plastic plate as future releasable energy. The liquid keeps circulating as required, either putting zinc onto the plates (storing energy) or taking Zinc off the plates (releasing energy) and has an infinite shelf life. Redflow is already producing units for residential use that store 10 KWH of energy. Two of these should power a house. They already have houses set up which are nearly 100%  power neutral. The battery stores the energy for years if necessary, has no fire risk, as Bromine is a chemical used in fire extinguishers and puts fires out, as opposed to Lithium which burns like a volcano on steroids.
The flow system appears to have no loss of storage capacity and provided it is being charged by solar cells keeps on working indefinitely. They are currently dearer than the equivalent Li-on battery packs, but are currently being put together by hand, so with automation, prices will come down and are expected to be comparable to the equivalent Li-ion battery packs.

How I Became a Volunteer Policing the Anti Money Laundering and Terrorism Act

Have I ever mentioned that I REALLY REALLY hate this act?I’m sure its intentions are noble, and it’s fit for purpose, ( actually I don’t) but what I hate is my part in it.  No one asked me if I wanted to be involved. I don’t!  and no one pays me for my time , but by law,  I have to comply or else they will throw me in jail! Nice one!!! 

As an example of the time commitment: – I recently listed three sections for sale.The first section belongs to  a person I have personally known and dealt with for over 20 years. His land is owned by himself and a trustee company. To comply with the AML Act ,  I had to sight and take a copy of his passport (proof of identity). Plus sight and copy a utility bill sent to his address (proof of address) . I then had to ask him how he got the money to buy the property( proof of income)  The Trustee company is owned by his accountant with three directors. I then had get the “Company Extract”  and the ” Certificate of Incorporation”  of the company  from the Companies office and do CDD (Customer Due Diligence) on all directors by sighting and copying their passports  and a utility bill as proof of identity and address. Remember they are just the trustees and have no financial interest in the property. Then I had to find out the trusts source of  wealth (how they managed to buy or own the property in the first place) and source of funds (how is the trust getting its funds to service and maintain the property). 

The other two sections are owned by a company that specializes in developing  sections. I have known and worked with the developer for around 15 years. I had to sight the passports of both directors of this company along with obtaining a copy of an account addressed to their homes. I then needed to ask them how they got the money to develop this section, ignoring the fact that I know its’ their profession and frankly none of my business.!

It took nearly a week to get all the required proofs. Meanwhile I had photographed the three properties, entered them into our computer system, and written the advertisements for them in 2 days. Due to the legislative requirements I could not begin marketing the properties for another 5 days. I would have spent as many hours on the compliance requirements as I spent on the entire listing process. I can’t charge anyone for this, (although the accountants and lawyers can) , and I am required to do this volunteer service, free for the government without any thanks and the overriding motivation that if I don’t do my job properly, they can fine me $300,000 or throw me in jail for two years!!! I wonder how many money laundering terrorists I will catch ?   Thanks, Jacinda, Winston and John! I just love being your volunteer. It would have been nice to have been consulted,  but I presume my Knighthood is in the Mail. (Sorry John but this stupidity started under your watch.)

I’m Very Immature for my Age and here is my Way of Paying it Forward!

To balance my “volunteering” , I have collected some obscure ways to get “Better Value” out of Government departments. I hope someone pays less tax, or gains some financial benefit from any of the following:-A rental property is a business and your business-related expenses are tax deductible. ACC. If you pay ACC levies you can negotiate your own deal under a secretive policy called “Cover Plus”. You negotiate what your weekly cover will be and pay your fee based on that set  amount. In the event of an accident you get paid the weekly amount agreed without having to revert to the current formula of 80% of your weekly income. This is especially pertinent if you are self-employed where your remuneration may not reflect your real earnings.Don’t Ask IRD a Tax related question. In a survey by the Dom.Post , 25% of the answers IRD gave to customers were wrong and in the case of GST, 50% were wrong. IRD are not responsible for giving you a wrong answer, as it is your responsibility to understand tax law and get it right, even if they tell you the wrong information.But wait!!! there’s more!! You can ask for a “Binding Ruling” from IRD. You pay about $6000 for this but when it hits the fan and you go to  IRD  with your “Binding Ruling” folded in your fist and a smug  “I’ve got this”   look on your face, IRD  can refuse to accept their own ruling.If you have a company and you have lent the company money as Shareholder funds, you can have the company borrow the money and pay it back to you. (you will still need to personally secure it with the bank ), but the loan is then tax deductible to the company and you can pay off personal loans like your mortgage. It’s a plus for your company and a plus for you.Check your personal credit card each month and don’t forget to charge all business expenses back as business costs.Donations are Tax Deductible. Lots of expenses are donations. You don’t have to have an actual  room set aside to claim for business use at home. You can claim for the portion of your house that you use for business purposes. It’s based on a percentage of space rather than an actual room.Renting out a room or flat on your property. If you let part of your property to another, the rent becomes income and you have to pay Tax on it. However, is you take in “Flatmates” then there is no Tax payable on the income. I am merely trying to volunteer my further assistance to the government to ensure my early Knighthood, but please check this information with an accountant or someone who specializes in this stuff before taking it as gospel. Tip …don’t ask the Tax department!

July 2019 Newsletter

Welcome to an unseasonably warm winter. 

  • Reality check – A salute to parents 
  • Electric houses coming closer
  • Market prediction for the next six months
  • Confusing legislation – about to erode your rights
  • Difference between Jonquil and Daffodil  

No frosts in my part of the world and the days are getting longer by a surprising 1 minute and 2 seconds per day. That extra minutes daylight is a lovely warming thought in the midst of winter. We are seeing the signs of an early spring with the Jonquils and Dahlias already starting to flower and the Wild flowering Cherries looking like they will flower about the time you get this newsletter.

Our lovely Daughter in Law recently went through a medical crisis with her spending several days in Intensive care and fighting for her life. The scary thing is they know what the issue was but not what caused it, and they suspect they never will. I drove to Tauranga to pick up their three-year-old and looked after her for 11-12 days. She is an absolute angel and such a well balance kid …. but …. I have not been so exhausted for I don’t know how long. On a good day it felt like my life was on hold, on a bad it felt like it was in chaos.

So, my greatest respect to all the parents out there. The ones who sacrifice their lives daily to create a warm and loving environment for their families. And Uber respect for those amazing and rare older parents who permanently take on one of their children’s children. What courage and what selfless dedication to another.

And to all the mum’s and dads who raise kids and work. I admire your time management skills and ability to focus on your tasks and fit it all in the same 24-hour day I have. You are the best!

My Daughter in Law is slowly recovering at home now, but it will be a while.

Futurist Predictions and Self Powered houses

The futurist Dr Richard Hames(NZ herald 14/7/19 ) . Has predicted that Hydrogen Fuel cells are the way forward for electric vehicles rather than electric. This could put a spanner in my very confident prediction that self-powered houses will be an option within 5 years. However he also predicts Trump will get in for another term so we will soon see if his predictions carry any weight.

I don’t know about Hydrogen Fuel Cells but do see a clear cross over between electric vehicles and self-powered electric houses. The new technology will be developed for cars and then crossed over to batteries for houses, as is already happening ( I.e. the Tesla Power wall) . If the way forward is Hydrogen Fuel Cells, then I don’t know how they will power houses.

A report from Bloomberg NEF, has electric car costs becoming cheaper than combustion engine cars by 2022. Previous reports had the crossover in 2026 which was reduced to 2024 and now to 2022. It stands to reason that as more manufacturers develop the new technology, costs will come down faster and the crossover point could be 2021 or earlier. Basically, this will be the end of the combustion motor car.

Market prediction

I haven’t put out a newsletter for a couple of months now, basically because I have been confused by what was happening in the market. I could see a slow down coming by it just seemed to never arrive.

We at Harcourt’s had some great selling months leading up to winter and it’s still going strong. This is contrary to many of the signs I had been seeing and to my earlier forecasts. So, did I get it wrong? I don’t think so.

The biggest driver of the market over the last four to five months has been the first home buyers. They have been out in numbers and snapping up any homes in the $350,000- $500,000 bracket. Once you move out of that price range the market has been a lot slower. We are seeing areas, Like Bream Bay, where most houses are over $550,000, hit a wall with minimal activity unless it’s under this price range.
We also need to consider that even though we are building more homes we still haven’t caught up with the under-supply. Recent reports say we are still falling behind.

Rents have been moving upwards, so those with Kiwi saver schemes, are being influenced to buy rather than pay $400 pw. plus rents into a landlord’s pocket. It’s a big incentive to beg steal or borrow to get into your own home.

Interest rates keep falling, although very slowly now. We get the combined effect of money being cheaper to borrow and the interest on money in the bank not being worth having, so many people continue to take money out of the bank and put it into an investment house.

If we look at Core logics” latest average price for Whangarei, its sitting at $548,223. This has remained reasonably stable for 8 months now, so it suggests the boom is over for now. However, a closer look shows that this figure is strongly influenced by the number of lower cost houses selling.

The fundamentals such as supply, interest rates, and immigration are still strong.
The days to sell is pushing out to around 50-60 now. Another indication of a slow down.

My prediction remains that we are heading into a stall. The market won’t drop because of the underlying positive forces, but there will be a period of adjustment for a year or two while people get used to the average property in the city being over half a million dollars.

Investor buyers will find increasing pressure from the Government to get out of rentals, but this will be offset by the low interest rates, rising rents and the wave of first home buyers wanting their properties. I still think that if you want to get out of rentals this is the time to do it. But similarly if you are wanting to get into long term rentals, get in while there is a slower period.

 

Warning !!! You and the Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters) Bill

Firstly, what a mouthful and secondly what a deceptive title for legislation that takes away landlord’s rights to offset their loses in owning a rental property against their main income. I have read the legislation and unlike most law changes, this one is about as murky as it can get. I think I have found the actual wording in the legislation but am still not 100% sure.

Here is what appears to be the relevant section
Sub-part EL— Allocation of Deductions for excess residential land expenditure

General outline
The provisions in this sub-part, in general, –

  1. Limit a person’s deductions for expenditure incurred in relation to residential land to income derived from the land; and
  2. Suspends deductions for the excess expenditure for the income year in which the expenditure is incurred;and;

These words mean you can no longer claim your rental loses against your main income.

Ashley Church, a writer for NZE, has written
Investment property in the major metropolitan areas generally makes a loss for up to 10 years before it starts to make a profit”
he goes on the say that the ability to offset business set up costs against other income
“ Isn’t a subsidy or a loophole, it’s a standard tax practice that is applied broadly against hundreds of thousands of businesses across New Zealand and is based on the principle that the costs associated with establishing a business and running a business should be deductible from overall income”

However the bill does appear to shift the loses to future years, so rather than reduce your tax liability the year it was earned you can offset it against profits from future years.

 c  Provide that the excess amounts are carried forward to later income years in which the person derives residential income. 

Some will think these changes fair and good. What I am concerned about is the way this change has been achieved and the longer-term consequences. To place it under this innocuous title is deceptive and give the appearance it is being hidden.

Secondly it is going to have a devastating effect on rental supply and our country is not ready for private landlords to withdraw from the market. I have written many times about how, we as a country need the private landlord, but yet again we are steadily driving them out. Remember that 4/5 rental properties are privately owned. There is already a shortage of rental properties in most centers and this will only get worse. One of the key reasons to buy a rental property is now gone. The inevitable result is we will see the most vulnerable and marginalized people unable to find rental accommodation and an increase in homelessness

Example . My daughter and son in law were fortunate enough to move into their own home last week. They have been paying $450 pw for a very basic three-bedroom house in a pretty rough area. I personally thought they were paying $50 a week too much. That same house is now being advertised at $490 pw and from what the kids have told me, has a queue of prospective and desperate tenants lined up to take it.

Useless fact .

Jonquils are basically Daffodils but have multiple flower head clusters and a strong scent . Daffodils are the yellow headed flowers we all know and associate with spring. They all come under the family “Narcissus” . Narcissus was a very good looking ancient Creek bloke who walked by a pool of water while hunting, decided to have a drink, saw his reflection in the water, fell in love with his own reflection and because he couldn’t have perfection decided to kill himself . I’m sure it made sense to him at the time! Out of his remains grew the Narcissus or Daffodil.

I invite you to give me some comments or what your thoughts are on the articles that I have written. I look forward to hear from you

 

 

 

March 2019 Newsletter

Welcome to the latest addition of our market updates and thoughts .

Life lessons March 19 - Lifes lessons

It doesn’t seem right to write anything today without some mention of the tragic events that unfolded in Christchurch. Personally, I feel in denial and am shell-shocked by the whole event and deliberately avoid hearing too much about it. I have avoided most of the TV news items and when I do hear one, I tend to change channels, when yet another reporter with the same somber expression and sad eyes is earnestly talking about some new angle or interviewing another expert or victim.  Its not the New Zealand I know.

The Chinese say Crisis and Change are twins. They are from the same womb.  Out of this crisis we are seeing the birth of a new level of tolerance and acceptance in New Zealand, at least for now. I personally find myself truthfully questioning those little everyday thoughts of intolerance and discrimination I have, along with a resolve to say something the next time I see it in others. It feels like the standard “It’s just a point of view, what harm can it do ?, no longer works.

If this event is the dawning of a new age of acceptance in all New Zealanders, then maybe, just maybe,  it had a purpose.

Market Prediction detective

We are seeing more and more evidence the market is hitting a slowdown period. Open homes numbers are way down and so is internet inquiry. The listings are coming on the market faster than they are selling so buyers have a choice of suitable properties for the first time in years. First home buyers are still there in numbers but the investor market has slowed down.

Houses still sell in this type of market but instead of there being 100-140 sales per month there will only be 70-80.

What does this means ?

  • 2-4% property growth for the next 2-3 years
  • Watch the Auckland market closely as the recovery will happen there first
  • The next property surge is most likely in 2022.
  • The 2021 Americas Cup racing may bring that forward a year BUT it didn’t have much effect last time it was here, so why would it this time?
  • If you want to sell a rental investment get in now. I have recently sold three out of four of my readers rental properties and it took a lot more time than both of us expected and in one case we sold at the bottom of the price expectation.
  • Investment property prices will tank and maybe even drop a little over the next 2-3 years
  • You need to get the asking price correct right from the start. You can’t put a higher price on and expect offers. If the property is too high in comparison to what other properties are listed at, you won’t get any offers at all.
  • Buyers are testing the market with low offers.
  • We wont see the pricing drops that are happening in Australia. Our market conditions and economy are very different. For a good explanation of the reasons get yourself onto Tony Alexander’ ( BNZ economist) newsletter.)

Put a medal on the private landlords chest Landlord Medal

What a sad day it would be, if the Government and the Reserve Bank ever succeeded in driving the private landlords out of the rental market. Some simple facts

  • 450,000 households rent ( Census figures 2013)
  • Housing NZ own 62,000 rental homes ( this figure is gathered by stealth as they seem to fudge their actual ownership by claiming properties they lease off private landlords)
  • That means 388,000 rental properties are owned by private landlords
  • That’s 6 out of every 7 rentals
  • If the private landlords all got out, you would presume it would be the governments job to provide the missing rental housing.
  • At an average cost of $500,000 each the Government ( ie you the taxpayer) would need to stump up with 194 billion dollars to replace them.
  • Or $53,000 extra tax for every one of the 3.64 million people who pay tax in NZ
  • To put that in perspective the Christchurch earthquake rebuild has cost around 40 billion so far.
  • The logical conclusion is …we need the private landlords so stop beating up on them.

Dinosaur discovery

Well not quite! its just that I have been guided by the very lovely and smart Julz Cooper  to provide a weekly Facebook video called “ Tuesday Chats with Barry ‘. These are my current and unscripted thoughts on mostly Real Estate matters condensed into a 2-3 minute video. dinosaur descovery

I’m sure there is an easy way to find these but if not follow the links;

1st video at town basin

2nd video at the bridge

3rd video at Tamatarau

4th video at Mair park

5th video at Laurel hall park

6th video at Densey Pass

Interest Rates

Interest ratesLikely to stay about the same levels for some time yet or they may even drop another .5% .  Turkey is going into recession, China’s growth is slowing dramatically,  Argentina if in financial free-fall, the USA is starting to lose a lot of the ground it had made up and Australia is feeling the pressure. The world economy is way too shaky to see any major hikes and we still have the delights of Brexit ahead.

Latest updates in the new Rental Regulations rental update

Just in case you don’t get the very valuable Rental Report from our Rental Business Development Manager he is a section of her document on the new rental standards. ( Courtesy of Renee Wilkinson 14/3/19)

“As you are aware the regulations that have been brought in over the past three years have been to do with insulation and smoke alarms. Every rental owner should have smoke alarms installed three meters from every bedroom and /or sleeping room, and on every level of house. With the insulation every investment property owner should ensure that the insulation on their property should meet the guidelines by 1 July 2019.’

On Sunday the 24th February 2019, the government released the new regulations that investment properties owners will need to comply with.

Heating   Rental homes must have a fixed heating device that can heat the living room to 18c

Insulation   Ceiling and underfloor insulation must either meet the 2008 Building code , or have a minimum thickness of 120mm ( nearly 5 inches)

Ventilation   Windows in the Living-room, dining room, kitchen and bedrooms , must be operable and extractor fans must be in rooms with a bath or shower, or indoor cook-top.

Moisture and Drainage    If a rental property has an enclosed sub-floor, it must have a ground moisture barrier if it is possible to install one

Draughts   Landlords must stop any unnecessary gaps or holes in walls, ceilings, windows, floors, and doors that cause noticeable draughts. All unused chimneys and fireplaces must be blocked. “

Now here is something to love. If you are a landlord you have until July 2021 to comply with these new standards,  yet  Government housing doesn’t have to comply until July 2023, but then we have a new date of  July 2024 before all rental homes must comply. Figure that out if you can.

An interesting but thought-provoking study

Thought provokingIn Professor Lipton’s book “The Biology of Belief” , he quotes a study done by Barbara Starfield in 2000 in which she logs the deaths that are caused by side effects of medical treatment or prescription drugs,  rather than the illness itself. These are called  “ iatrogenic deaths”.

“According to conservative estimates published in the “Journal of the American Medical Association” Iatrogenic illness is the third -leading cause of death* in this country ( USA). More than 120,000 people die from adverse effects of prescribed medications each year . A more recent study, based on the results of a ten-year survey of government statistics, came up with even more dismal figures. ( Null et al, 2003)  That study concludes that iatrogenic illness is actually the leading cause of death in the United States and that adverse reactions to prescription drugs are responsible for more than 300,000 deaths a year. “

*( In 2017 165,500 people in the USA died of Heart disease and 152,500 people died of cancer)

Staying young

Stay youngAs I have the pleasure of growing older, I am appreciating some different things. Firstly, its grandchildren. To see the way, they deal with their world is magic. The energy and enthusiasm they bring to the table and the way they master so many new skills such as walking and talking. You can see their intelligent little minds working things out behind their intently staring and very clear eyes.

Secondly to the younger people in my life. The first-time parents who have blessed me with their friendships. These people are like the Yin to my Yang. They have a different way of seeing the world and bring a balance to my life and a fresh way of looking at things. Sometimes the way I used to look at things and sometimes the way I still do, but often from a perspective that I hadn’t thought of.  So, to the younger generations, thank you all for being in my life, you make it so much richer.

December 2018 Newsletter

Contents

  • 2019 Property Price Predictions
  • Time to sell you rental
  • You are about to get Probed ( AML)

 

thank you

Diana and I would like to take the opportunity to thank you for your support over the last year and to wish you and all your loved ones a happy and safe holiday season. The many comments and notes of support we get makes the effort worthwhile. We love to share our combined 60 years of Real Estate knowledge with you.

2019 the year of the Bi-polar Bear.  

Its time for our annual prediction about property prices in Whangarei. We started these in 2015 and they have been scarily accurate so far, coming within a few percentage points of the predictions. We thought 2018 would end with prices 10-12% above last year and in November they are 11.3% above.

2019 is going to be the hardest year to predict because the market is surging on, so all the sales evidence is saying its going up, but the reality is that it probably shouldn’t be. We are overdue a full stop and 2019 is likely to be it. The market seems to have fragmented into two markets. Those properties above $600,000 have been moving slowly but steadily ahead. Influenced by the Aucklander’s relocating.

The lower under $600,000 sector has been going gangbusters.

So what’s going to happen in 2019.

thinking

Prediction#1

We are going to see the slowdown, but the market will have two tiers. Properties above $600,000 will continue to move upwards at a slowing pace while properties below $600,000 will almost stop moving. Over the full year we will see growth at around 5% by December 2019.

The evidence says the market is surging ahead but my gut instinct after over 35 years in the industry is that its time for a re-evaluation.

Prediction #2

The rental market has peaked and it’s time to sell.

 If you are owning a rental for the long term, then hold onto it, but if you are owning a rental for the short term then its time to sell it. The bottom end of the market (rentals especially) has moved more and faster than the rest of the market for two years now. The gap between the dearer properties and rentals has closed and right now, in my humble opinion, rentals are at their peak and probably overpriced.

Rents are moving upwards slowly but are not keeping pace with the investment value. There is a chronic shortage of rental properties so there is no problem with supply.  But the gap between rental house prices and the average family homes has closed to an unusual level.  The bottom end of the market has pushed up while the level above that ($600,000 plus) has moved a lot slower. This means the gap between the different quality of homes and the different areas has compressed. A bit like two tectonic plates moving. Something it going to give!

Either the prices above $600,000 are about to get an upwards adjustment or the prices below are about to stall.  Which is more likely? Listing are coming on at a faster rate, so I personally believe that its going to be the latter.

Prediction #3

The sharp rise in rental value homes will stall for a number of years and in certain scenarios could actually drop a bit.

One of those scenarios is currently happening. The government of the day makes it difficult for private landlords to own homes. The current legislation means landlords have to provide: -, insulation, heating in every room, building warrant of fitness’s, and draft stopping to name a few.

Changes to the Tenancy act are all in the tenant’s favour with: – less ability to adjust rents, harder to get bad tenants out, and possible taxes on capital gain to come.

All this envy thinking makes the hassle of owning a rental home too much of a problem for many and we will see a mass exodus of landlords from the market. This is not new, we see it after every upward property correction, but this one will be particularly strong as the new legislation is 100 percent tenant friendly and 100 percent landlord unfriendly.

For example, in the 2nd reform bill currently before parliament, if your tenant damages your property their liability will only be as high as their bond or your insurance excess.  Imagine how your insurance company is going to react if your tenant can damage your property but has very limited liability for their actions.  Your premiums are going up and so are the excess levels.

In the previous two years we have predicted a rise in homelessness through existing Reserve Bank activity. We now have unfriendly Landlord legislation and the homelessness level is going to skyrocket.

2019 and 2020 is going to be the years we see a surge of mum and pop investors getting out of rentals as an income. Anyone considering selling needs to be in the front of this exodus. Not in the middle or the later stages. You need to sell while there are still plenty of buyers and that is now while the market still has upward momentum. If you leave it too late you will be competing into a market where there are a surplus of rentals and a shortage of buyers.  If that imbalance gets out of whack you will see prices come down. It’s happened before.

If you are long term (5 years or more) then just hang in there. There are plenty of tenants, so you are not going to sitting on an empty house, but you will have to spend some money on it to meet the new legislation and you will see some of your rights eroded. For example, you may not be able to stop tenants doing minor alterations to the property, nor stop them having pets.

If you have your money in rentals for the capital gain, then it’s time to move on.

Keep in mind the Brightline test. If you purchased before 1 October 2015 then you had to own it for 2 years or pay tax on the profit. As we are now over three years from this time it doesn’t apply.  If you purchased it after 28th March 2018 you have to hold it for 5 years to avoid tax so you should look at riding this cycle out unless you are willing to donate a third of you capital gain to the Government.

There is one factor that could alter this prediction. Current first home buyers get a grant from the government of $5,000 each if they buy under $400,000 in Whangarei. If your property is worth $400,000 or less and is in in a reasonable area the First home buyers are waiting in droves.

If the government lifts the ceiling to say $500,000 then this will positively impact on all properties under $500,000.

Disclosure. I have sold my only remaining rental property for a number of reasons but definitely influence by the above.

Anti money laudering

Anti-Money Laundering and Counter Terrorism Act!

What an absolute nightmare this has become!!!! I can not see how this legislation slipped quietly by the civil libertarians without so much as a whisper.

Most would say “I don’t money launder and am not a Terrorist so what’s it got to do with me?’.  How very wrong you are. This will be the most comprehensive invasion of your privacy you will ever experience beside smear tests and digital prostate checks.

As of the first of January, this year the final phase will be in place.

The very next time you go to sell a house this is what is going to happen BY LAW.

The agent will be required BY LAW to risk assess you: –

  • Establish your identity (Passport, birth certificate, drivers’ licence, or Gun licence) AND the agent has to hold a copy of these documents on file in their system
  • Establish how you purchased your house.
  • Establish you correct living address
  • If your house is in a Trust, then the agent must complete this procedure for every member of that trust including the beneficiaries. This will include date of birth, source of wealth, where they live.
  • Your Agent can not enter a listing contract with you until that information has been verified by an authorised compliance officer.
  • If your agent thinks you are a suspicious character, they are obliged to report you to someone we don’t know yet. Probably Donald Trump!
  • If the agent fails to comply with the above, then they are liable to up to 2 years imprisonment and up to a $300,000 fine
  • A very similar criteria applies to buyers

If the agents haven’t bend you over the barrel enough, wait till you see your lawyer. They get the job of completing the personal probe. They have been doing it since July this year.

They will have to: –

  • Independently confirm all the above plus a whole heap more before they can act for you, including
  • Check that you don’t have Russian or North Korean connections.
  • Check that you have a NZ IRD number. No IRD number and the sale cannot proceed even if you have a signed contract. (most contracts have a penalty interest rate if the purchaser can’t settle on time. This also applies to the seller is they can’t settle on time)
  • Check that you have a NZ Bank account. No NZ bank account = no NZ IRD number.
  • Read this lawyer Guideline. “in many cases reporting entities will be unaware what the underlying criminal activity is. However, by screening transactions and activities for known indicators and typologies, a reasonable suspicion that the transaction or activity is relevant to criminal offending may arise. In these cases, a Suspicious Activity Report must be submitted to the Police Finance Intelligence Unit. “

 Already we have heard that many lawyers are adjusting their standard fees by adding one hour of their time to complete the basic check. It certainly makes quick settlements a thing of the past and if it’s complicated, you are billing goes up by hundreds if not thousands of dollars.

And just like the infamous “Y2K virus” and the “Great Meth Myth” we already have a plethora of opportunist service companies offering the” Complete Service Package” for a fee. A whole new industry has sprung up out of the legislative leaf litter like a fungus on the forest floor. If you have any doubt, just try Googling ‘Anti-money laundering “

We all have heard the saying that “the job that todays child will do as an adult, hasn’t been invented yet “.   I can see why.  Who would have thought a complete and separate compliance industry could grow out of you simply selling or buying a house.  I think I may be getting too old, it just seems like stupidity to me.  Like when they stopped us buying the very effective Pseudoephedrine based cold relief pills to stop the rise in “P’ manufacture. That worked …didn’t it?

We have been told that NZ is simply falling into line with other western countries, but really!!!! Why should this burden be placed on Agents? It shouldn’t be our job and you rightly shouldn’t have to be interrogated by your agent to this level to sell a house.

This is a classic case of the whole of society paying the price for the actions of less than 1/100,000 individuals. (I’ve tried verifying this figure, but not surprisingly no one knows how much money laundering and terrorism financing actually happens)

When I started in Real Estate in 1983, our listing form was one page long. A few years later it went to two. As of today, its 8 pages long and this legislation along with the health and safety stuff we must do will probably double that.

Prediction #4 (not really a prediction…more advice)

If you are planning to sell your rental, or your own home next year, get it listed before the 31st of December this year.  It doesn’t matter when you market it or actually sell it, just get the listing signed before the years end.

empowering people through property banner -2

Best rental areas to buy in Whangarei.

A Fresh look into the Crystal Ball 

Of all the articles I have written over the last 4 years,  the one on this topic written in 2015,  is the most searched and commented on. I revised it in 2016 with some key points to look for in a rental but due to popular demand, this newsletter is dedicated to where the next hot rental areas are going to be.

 

A Few Key Principles 

  1. Rental areas change very slowly. Its pretty much a house by house transformation, so the change usually takes years. 10-20
  2. Any property is a good rental today as there is a chronic shortage of houses that will only get worse with current government anti-landlord thinking. This shortage should be with us for at least 10 years
  3. All areas have good rental opportunities, but some areas will test your faith in humanity more than others.
  4. Schooling is an important aspect to any rental. Chances are you will be renting to a young family.
  5. Housing New Zealand houses tend to reduce an areas value, particularly if there are a number of them, as HNZ tend to have less interest in the tenant’s behaviour, and the houses tend to be utilitarian with little in the way of planting or improvements. HNZ hold them for years so there is little chance of new people owning the houses and having them improve the property.  The best clue for spotting a HNZ house is the appearance . They are usually well-maintained houses (painted) but no planting around them.

Areas on the Rise 

  1. Northern Tikipunga and Kamo East. The city is expanding to the north with the rezoning to residential of a few hundred hectares. This means the next building boom is going to be on the land between State Highway1  at Springs flat , across the north of town to Vinegar Hill road. The areas nearest to this growth area are Kamo East and northern Tikipunga. We already have the new suburb of Totora Parklands  in the middle , with new houses selling for $600,000 to $680,000. This has to trickle down to the cheaper houses in the area. Don’t forget the supermarket and large shopping complex in Paramount Parade. Key streets for a bargain are: – Corks., Amber, Elm, Te Anau, Manapouri, Ascot, Escalona, El Viso, Eden, Gillingham and for the adventurous, the beginning of Charles  and all of  Lewis streets have to be worth a rethink. Both streets are improving house by house. Charles has a  few dreaded HNZ houses at the end .  ($340,000-$500,000)
  2. Riverside. This was my top pick in the 2015 article. It was above a dump and now its above a well-used and popular park that covers a dump. Many of the houses have upper harbour views. The area has risen in price already but its’ close location to town means it has more upside yet. ($400,000-$450,000).
  3. Morningside. Has been steadily rising in value for about 10 years now. Walking distance of town and some quaint older houses in the area. Faces north and is on a sunny slope. Has some ground water issues and most sections are steep, but still a popular rental area. Look for some good bargains on the fringes of Morningside moving into Otaika. ($350,000- $480,000).
  4. Raumanga Valley and Heights. You tend to get good value solid homes in this area as other parts of Raumanga can be rough. Select your streets and you will get a lot of house for your money. The schools are a bit rough but its right next to the polytechnic so plenty of renters. ($380,000-$480,000)

Consistently Stable and Good Areas .

  1. These are the most popular areas but are more expensive to buy. They have the greatest appeal to tenants. Good neighbourhoods, good shops, and good schools. Great buying but you will have to pay more and while you will get a slightly higher rent your percentage return on investment will be lower. Maunu, Kensington, Kamo West, Mairtown, Regent, Whau Valley, Parua Bay, ($550,000 – $700,000)

For the Mentally Strong and Risk Takers .

In an earlier newsletter/blog I wrote an article headed “Lessons from Colin”. In this article I discussed the merits of the real cheapie houses in terms of capital gain and income stream. These are the properties for the seasoned landlords who can handle the disappointment of being let down on a regular basis. You are looking at cheaper entry prices and good returns on investment, but you will get more tenant damage, arrears, and turnover.
These properties do very well now while there is a property shortage but will get harder to rent in 10 years or so when, and if, rental properties catch up with demand.

  1. Otangarei. Rough area but good solid ex state homes. Close to town. Will need to regularly monitor for Meth’s contamination but with the new standards coming soon, not as big a problem as it was. Great area to get a good return and as the “Lessons from Colin” article demonstrates rents and values go up just as anywhere else does. Warning! Don’t buy here thinking the area will eventually transform into Kensington North . Way too many state houses (200?) which will permanently hold the area back. It will always be the poorer part of town. ($200,000 – $300,000.)
  2. Raumanga South and Otaika. Close to both town and to Raukaka. Houses tend to be cheaply built so you will get more maintenance issues than Otangarei. Popular area for gangs so the combination of less structurally sound homes and more physical people means if I was going to buy in this price bracket I’d prefer Otangarei . However as the HNZ homes in the area are more spread out ,  it probably has a better chance of changing over time.

AREAS TO WATCH 

  1. Vinegar Hill. This will be an area to watch. Its right on the border of the new city limits in the north so should get the full impact of the building boom that is affecting Kamo East area, however  the houses were mass produced for the refinery expansion in the 1970’s and as a result they tend to be cheaply built and  on cross lease sections. But ! the new houses are going to be right across the road on the other side of Vinegar Hill and the fully sold out Palms Retirement Village is on the other boundary. Together they  put strong price pressure on this cluster of houses. On the counter are the poor overall quality of the homes combined with the specialist immersion school smack in the middle, both combining to anchor the area in the rough and ready category. Logic says that the upward pressures will overcome the downward pressures, but this will take some time to eventuate. If you are looking 10-20 years ahead then buy here but be ready to spend a bit more on maintenance. The prices are cheap. ($280,000-$350,000)
  2. Raukaka/ One Tree Point. This area has seen rapid growth over the last 10 years. The overall quality of the homes is good and the setting next to Bream Bay and the Harbour is spectacular. While there are many people looking for rentals, there are not as many as in Whangarei itself. Some properties in the area are taking a while to rent and rents compared to the value and quality of the homes are a bit low. This area is comparable to Papamoa about 20 years ago. Its growing fast and the population is growing equally fast. At some stage it will become more popular than it already is, and we will see a sudden rise in demand and rents. Buy here for the future. You will get a great home with a lower return for now, but it has to go bananas soon. ($550,000- $650,000)

OTHER INTERESTING STUFF 

  1. House prices were stable in Whangarei with an average price of $531,418. This is a small drop on July,  but based on our current high level of activity, a  victim of the smaller number of higher priced sales and the large number of lower priced sales.
  2. The winter slow down I predicted at the beginning of the year didn’t happen and sales have been steady through out the winter months. Harcourts sales for August were exactly the same as August 2017 and that was during the boom.
  3. The only restriction to more sales per month is a lack of listings. If we had more listings we would have more sales.
  4. According to Realestate.co’s figures, Auckland has seen a sudden and significant rise in listings for August. Brace for it, that’s a new wave of Auckland buyers heading north in October.
  5. The pressure on rentals is building. Mostly due to not enough of them, and significantly affected by the number of first home buyers in the market. You hear the myth that First home buyers are neutral in the market, in that they leave a rental empty to buy a rental that was rented. Most of the rental buyer I have dealt with, are moving out of a parent’s home or out of a flat of other people. The rental problem is getting bigger by the day.

The Anti-money Laundering Legislation, that is now current for Lawyers, is  proving to be a massive invasion of your privacy and will be putting significant increases on your selling costs. You will see its impact the next time you go to buy or sell a house. We are told this is to bring NZ into line with the rest of the world, but it seems that its format has snuck in without consideration of peoples rights to privacy. You now have to prove how you got the money to buy a house and more importantly how you got the money to buy the house you are going to sell. This legislation is very Police State and seems a massive overkill on a problem that most of us have only ever heard about through newspapers

• June 2018 Newsletter

  • The Great Meth Myth and its Victims

heads roll

There is an old saying      ‘ When everyone is thinking  alike …. No one is thinking!  “  .

This is very true in real estate and we have just had a classic example of this with the current Meth’s test debacle.  This matter makes my blood boil. Its not like the latest finding by the Governments Chief Science Advisor, Sir Peter Gluckman, is new. This matter was first raised by Dr Nick Kim, Massey University’s Chief Chemist about three years ago. His comments were broadly dispersed through the media with several television programmes outlining his views.  He was adamant that the Ministry of Health had it all wrong.

To make matters worse this man was on the Government advisory board that set the standard measurements in the first place. Dr Kim was clear that: – “the way the test was being used to measure second hand Meth’s residue in houses was wrong.”  The tests were designed to measure a marker in Meth’s labs, where the chemicals used to create the product were a lot more harmful than the end product.

He said he would be happy to have his kids in a house with levels over 12 mgu and that it was no worse that cigarette smoke. I wrote and widely disseminated an article headed “The Great Meth’s Myth “, predicting that with this new information, things would change . And they did a tiny bit. The same people who had misunderstood how the test should be applied in the first place raised the level of measuring from 0.5 mgu to 1.5 mgu,  showing once again, that they had no understanding of what the test was about and continued to  apply the right to test to the wrong situation. The children’s story of “The Emperor Who had no Clothes “ has some alarming parallels with this story.

At that time Dr Kim was saying the residual fly spray on your walls was a lot more harmful to you than second hand Meth’s smoke and that if you open your windows the harmless residue smoke would clear itself.

This new research has totally validated Dr Kim’s own findings and shows just  how stupid some people can be. Especially the people who apply these types of rules to the public.

Unfortunately, there are numerous innocent victims of this stupidity. The insurance companies that have paid out fortunes to have houses de-contaminated that didn’t require it. The house owners who have paid cleaning companies thousands of dollars to clean houses that didn’t require it. Landlords who have had regular tests done when tenants have gone into or out of houses which wasn’t required.

And it doesn’t stop there. The cost to home buyers who have had lawyers and banks insist that a Meth’s test, costing around $400, be a standard clause in any sale and purchase agreement, or the home owners who have negotiated thousands of dollars off the value of their properties to buyers because of low level contamination. (Just 1 hour and 30 minutes before the new information hit the media we had negotiated and signed off $75,000 from the sale price because of a low level of contamination).  My heart goes out to the owners as victims of blind bureaucratic stupidity.

This whole scenario is just so wrong and undermines the publics confidence in the people who make these standards. Its not the scientist like Dr Kim, who created the measures, nor in this case the media who widely promoted Dr Kim’s findings,  but  the hidden nameless individuals and committees who hide in the bureaucratic halls of government departments, who didn’t understand what they were doing,  and continued to apply the right test to the wrong situation. How many other examples do we have where this is currently happening.  Ian Wishart’s book “Show me the Money  Honey “ suggests quite a few in the medical field alone.

Sadly, it again reminds me that there is a lot of money to be made from alligator skins so not everyone is thinking of draining the swamp.

I do hope some heads roll but I bet they don’t.

Link to earlier article  Earlier article

  • WDC Population Figures Widely out of Whack

population

Most countries have difficulty accurately measuring population growth. This is because it is based on the Census figures that come out every 5 years. It is estimated that about 8.7% of the population don’t fill in the census so the figures given are already 8.7% behind the actual figure. The  Whangarei District Council use the census figures, as you would expect, and have reached the following conclusions about our population growth:-

The WDC predictions for the future are:-

Over the next 30 years, the population of the Whangarei District is expected to increase at an average annual growth rate of around 0.9%. The population of the Whangarei District is estimated to reach 110,000 people by 2043, an increase of around 26,000 people from 2013 or approximately 870 people per year.”

However, individuals in the WDC who are monitoring historical growth figures are already noting that the population is growing quicker than planned.

Mrs Seutter said the recent statistics, estimate Whangarei District’s population to be 87,700 residents, a 2.1% increase on the previous year, and reveal that just over half of this growth is in the urban area.” (WDC planning June 2016)

One has to question why the population is growing at 2.1% yet still be assessed at 0.9%

Based on the 2016 estimate the population of the Whangarei District at 2018, is currently sitting at 87,700 +870 +870 for 2017 & 2018 = 89,440 people.

We know from the census returns that this figure will be underestimated, but let’s look at what we can currently measure using other sources. There is a Government body that accurately records people registered with doctors and the medical system.  As their funding is based on the actual population seeking services this proves a very accurate way of tracking population growth,  because to have access to the medical subsidies available in our health system, you have to be registered. What these figures show is a very rapid  growth rate since 2013 but more significantly since 2016. Keep in mind the WDC population growth estimate is for 870 people per year.

 2016                         1835 new registrations                                                                               2017                          2094 new registrations                                                                             2018                            on track for  2432 new registrations

This is over double and closing on treble the WDC estimate, but in line with the WDC statement of 2016 showing a 2.1% actual growth.

This means that in a 3 year timeline from 2106 to 2018, while the WDC is planning for a population growth of 2610  people,  the population is actually on track to  more than double that growth rate at 6,361. The last 5 years of medical figures show that the population growth rate is accelerating, so the WDC is not only underestimating the real population growth but falling further behind each year.

  • What Impact on Housing Demand.

boomThe below snippet is taken from my July 2015 Blog post and explains how many houses we need per 1000 people.

Statistics NZ say the average number of people in each occupied Whangarei household is 2.5 people per household. WDC has a higher figure of 2.77 as they have factored in the empty holiday homes. 84,500 divided by 2.77 people is 30,505 dwellings required and 84,500 divided by 2.5 people per household is 33,800 dwelling required. Based on these two calculations, we are either currently keeping up with demand or we could be around 2,500 dwellings short. If we support the WDC figures (and I do) then we are currently sitting about right. However, if we see the kind of growth rate that is being suggested by the Hospital research, then we are facing a looming housing shortage starting about now. We need 361 new houses per 1000 new people and residential resource consents for new homes are running at about 350 per year (WDC resource consent monitoring 2014)” 

The current WDC new house building consents (these are issued house permits, so some may not have been built yet) 

2016     612 new houses                                                                                                              2017      611 new Houses                                                                                                                      2018 to date 253 New houses

Based on the WDC figures of 361 new houses for 1,000 people, we are not keeping up with our current demand by about 80-100 houses a year.  The consents from 2016 are nearly double the consents of earlier years so kudos to the building industry. The surge in new houses built means the looming crisis has been partially averted and we have a shortage of houses in the hundreds rather than in the  thousands as is the case in Auckland. However, we are seeing new builds failing to keep up with population demand and the gap will grow and therefore we will continued to see pressure on the available housing stock.

As mentioned in earlier articles this will first be seen in the very bottom of the rental market. The people with poor tenant history will be the first to find they can’t get a rental. We are well into that phase now. Our rental department says they get well over 1,000 inquiries per month. Of these 80% will not fit the good tenant requirements for our landlords. This indicates there are 800 people inquiries each month who are starting to find the supply of houses is drying up for them.

The problem most builders are facing is the lack of sections available for sale. We have fallen way behind the numbers needed which is not helped by the draconian processes and costs one must undertake to create a section.

Enter the super heroes of the urban environment …. The developers!!   I have said before  that these people are not the enemies of the state they are so often portrayed as. These are the heroes of the people, the knights in shining armour who bravely put on their plastic safety helmets  and armed only with wads of money and a shield of reports combined with  the patience of a snake charmer, take on the legions of bureaucratic dragons within the system. Fighting super  slow motion battles , these modern heroes battle  against overwhelming hurdles and weird senseless conditions, to eventually triumph through to win a few sections> The builders then  create your next castle and future  haven and the dragons get the last laugh by taxing you every year to live in it.   Bless the developers, your heroic work does not go unnoticed!

  • House Prices Keep Rising with a Surprising Jump.

House Prices

Corelogic have the average Whangarei House price in May at $524,268. This is a huge jump on the previous month which was at $512,326. The rate of growth suddenly accelerated from what has been a gradual decline. This could be a one-off anomaly, but it may be the early signs of some new pressures in our marketplace such as the aforementioned population growth. We will monitor this jump carefully as this May saw increases back to the market peaks  increases with property growing in value at around $3,000 per week.

In the office we are seeing  pressure on any property priced under $650,000 with multiple offers on many, which appears to be driven by the first home buyers back in the market. The market still has a strong upward drive, so while the rate of growth is slowing, we don’t see house price rises stopping anytime soon.

Our new year prediction of the average house price being in the $525,000-$550,000 by the end of the year looks like it may be conservative with us nibbling at the lower end of that figure 5 months into the year.

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Electric cars, Unions and Real Estate

Content;

Newsletter

  1. Electric Cars and batteries
  2. The impact on powering houses.
  3. The future rise of the Unions. CEO wages versus General wages. Lessons from the USA
  4. House prices now and tomorrow
  5. New Zealand Population Growth

 

Electric Cars are the Future Electric car

One of my sons works as an Operator at the Marsden Point refinery and he will considered this article blasphemy. Sorry lad, but I think the writing is on the wall.

I have recently read the Elon Musk book by Ashlee Vance. It’s a great read in itself but more importantly shows the age of electric cars is upon us now. All that’s holding it back is the amount of cars that can be produced.

In the news you often hear how his company “Tesla” is in trouble with slow production levels and two fatal car crashes. This is typical media hype.

The only trouble Tesla is in in, is that they haven’t streamlined their factory production levels to meet the 2500 cars per week targets. (they will then raise this to 5,000 cars per week and then 20,000). Around 450,000 of these cars are presold with deposits paid on them, so at 5,000 cars per week they have 7.5 years’ worth of orders already. Most of the cars are sold by word of mouth without any major advertising. This is not a company in trouble, far from it, it is a company that is leading the way in new electric car production. A lot of the old-style combustion motor car manufacturers are seeing the same writing on the wall. BMW and Toyota both have shareholdings in Teslas’ battery factories and these manufacturers are starting to get into electric car production in a big way.

Think of electric cars as more like computers with a few extra moving parts. The latest car upgrades get emailed to you and you simply download them into your vehicles computer to have all the improvements.  You don’t have most of the heavy stuff  that’s in a traditional  car such as a motor, differential, drive train, brakes, cooling fluid and radiator. You have more storage where the heavy stuff used to go.

Teslas’ winning advantage is that the cars are not hybrids with all the weight disadvantages of a traditional motor along with  the extra costs of an electric motor and batteries. They are dedicated electric cars and as such, building them will get cheaper, just like building your Television did. We are in a new era of transport. It’s no co-incidence Tesla is based in the Silicon Valley area with other electronic technological companies rather than in the traditional steel towns of old.

The secret to electric cars is batteries. Tesla has now branched out into massive battery production factories which they call Gigafactory’s. (Panasonic is their partner). These factories dwarf anything we know in New Zealand with one such factory in the process of expanding from 180,000 square meters to 1.2 million square meters. That’s about 120 hectares or over 120 rugby fields, and this is just one of the battery production centres.

The secret to batteries has been the development of Lithium-ion batteries. Any home handyman who changed from their nickel-cadmium electric drill to a Li-ion one knows the huge leap in performance this created. These batteries are restricted in size as if they get too big they can catch fire. Samsung knows all about that with their phone batteries catching fire. Tesla has pioneered building huge battery packs from these small 18.6 mm x 65 mm batteries. The individual batteries are the AA size you would put in your torch but by putting many hundreds of these small batteries together along  with a cooling system, Tesla have created big battery packs of around 540 kg. These packs are safe and can power a car for up to 550 kilometers on one charge.

But wait there’s more!!! The giga factories have just developed a slightly larger battery. Its 21 x 70 mm so that’s only slightly longer and fatter than its’ predecessor. Its about the size of a 12 Gauge shotgun shell. Although a commercial secret, Tesla says these batteries are 35% cheaper to produce and have about twice the power of the 186 x 65 batteries.

We all know that electronic technology goes ahead in leaps and bounds and that electronic products just keep getting cheaper. This will be the case with the electric car. Within 1-2 years there will be the next big break through in batteries that will see vehicles with 700- 1000 km ranges. There are strong rumours that the next battery technology has been found and uses a different and more common product than Lithium.

And the two fatalities! Both were people incorrectly using the self driving technology when they shouldn’t have.  Nothing to do with the cars safety but a lot to do with the self drive technology that still has some teething troubles.

Prediction. Electric vehicles will be the top selling car in NZ within 5 years and combustion vehicles will be all but obsolete with 15-20 years.

 

question mark So what will be the  impact on housing?

Travel will be cheaper and therefore people will be prepared to live further from their work. Combine this with the portability of work with the advances in internet and data speed.  Peace, privacy and quality of life will become more important than they are even today. Driver-less technology is a partial reality today and as this gets  developed to much higher safely standard the drive to work or school may become a time for a nap or to read your emails.

Good schools will still dominate the choices of young families, but the provinces and country districts will benefit from people moving out of the cities for lifestyle reasons.

The technology of these new batteries will transform power supply for domestic housing. At the moment solar powered homes are the rarity and only marginally economic, but with the new technology solar power capture will improve and the all-important storage of that power will be more efficient. It’s probably not worth rushing out and buying solar power now as the collection and systems will improve over the next 5 years and today’s systems will be obsolete and expensive by then. For example, Tesla’s Home Power-wall 1 storage battery held 6.4 KWh while the Tesla Power wall 2 which came out 18 months later has 13.5 KWh. Its still shy of the average NZ homes daily consumption of 46 Kw but with the speed of technology advances, standard new build homes will have the option of being entirely self-contained for power in 3-5 years. Its only going to take one more advance in battery power or one more advance in solar power recovery, for the dream of being self contained in power to be a common reality.

With technology improvements daily power consumption will go down. Take for example your hot water heating  which typically accounts for 40% of your power bill. The latest technology, (which is being used in NZ homes today)  uses the latent heat in the atmosphere to  help heat your water. Its the same technology as your heat pump. It sits outside the house and can link into your existing hot water cylinder so you can take it with you if you want. The manufacturers claim it can reduce your hot water bill by up to 70%.

The rise of the union movement. CEO salaries and the revolutionUnion

The New Zealand Union movement has had some of its saddest years. The once powerful unions lost touch with the people they represented and over a number of years paid the price for a high level of arrogance. New Zealanders turned off the union in droves and are still doing so in huge numbers as the Union movement continues to stick stubbornly to the old-fashioned ways. However, this will start to change, and a new breed of union is on its way. The wages to boss’s gap is getting bigger and it is only a matter of time before the actual producers start to say we want a bigger slice of the cake.

New Zealand is developing one of the highest average wage to CEO salary disparities in the world. Basically, the bosses who are paid to return more money to the shareholders, are squeezing the workers who produce the products by one of the higher ratios in the world. According to the Herald the average CEO of the larger organisations receives $1,732,000 remuneration per year. Statistics NZ has the average wage in NZ as just under $60,000. That means the CEO’s get 29 times the workers income.

The USA demonstrates the growing trend to reward sections of the community disproportionately with the CEO ratio moving from 33 times in 1978 to 276 times in 2015. The average worker pay over this period moved around 10% while the average CEO’s salary moved around 950%.

These types of increases are not sustainable and are a bit like a pyramid scheme. They will reach a level that the general population find intolerable. We note that the NZ Reserve Bank has alluded to this issue on several occasions mentioning surprise at the lack of wage rises and the contribution to continued low inflation.

Research by Jonathon Tepper in the article “Why American Workers Aren’t Getting a Raise” suggests some key reasons that all seem to have parallels in NZ.

  • The weakening power of the Unions. The ratio of union members in the USA has dropped from 20% to 11%. In the past the unions drove up workers wages while checking CEO wages. Weak Unions mean there is no check on either. The few unions that are still strong have better average wages for their members. (In NZ Take the operators at the Refinery for example.)
  • Company owners are taking a bigger slice of the pie. Corporate profits as a percentage of GDP are at record highs while wages are at a record low as a percentage of GDP.
  • Too many industries have become monopolies either in the country or the locality
  • There is not enough divergent competition for workers. The trend towards monopolies means the company does not have to compete for workers. (some examples given in the article are:- Two companies control 90% of the beer Americans drink, 75% of Americans only have one internet provider, 5 Banks control half of the nations Banking assets, 4 companies control all the US beef market, 4 Airlines control almost all air travel.
  • Over half of all public firms have disappeared in the last 20 years.
  • Average mark-ups have increased from 18% in the early 1980’s to 70% in 2014.
  • There is a growing disparity between wages in the big cities and wages in the provinces.

It hasn’t happened yet, but this growing inequality suggests that rather than a French style revolution where all the boss’s get guillotined , we will see a surge back to unions. The wage earners are not going to continue to see themselves on a diet while the big boss continues to get fatter and fatter consuming a bigger and bigger slice of the cake. Unions will have to shift their thinking from the old school testosterone fuel behemoths of the past to something modern and sophisticated, but it is inevitable that something is going to change. The corporations and CEO’s will only have themselves to blame as we enter a new age of strikes and industrial action. Days lost to industrial action always rises during a labour Government and we are seeing the early signs of this with a looming nurses’ strike just around the corner.

House prices now and tomorrow  

stats

The just released Core logic figures for Whangarei show our city and region still rocking ahead with an average $510,409 price for the city and still rising, although slowing a bit. The fundamental shortage of properties remains the main driving force and until this is met prices will continue to head up. Our own figures show that it’s the bottom half of the market that’s gaining impetus. In a recent sales meeting we saw that 94% of our sales were under $600,000. In the last newsletter I predicted that we would see a price growth phase in the early part of the year with a slower period in the winter and then rising again in the spring. More like the traditional markets of the past.

The current level of sales is backing this up with offers and multiple offers on most under $500,000 properties and busy open homes. The small drop in the deposit ratio to 35% has seen a flood of first home buyers come on the market and this is further driving the bottom end. Investors are back, and the current price rises have a lot of buying pressure behind them.

New Zealand Population Growth Still Rising

The latest net migration figures are out, and we have hit our highest net gain ever of 72,300. This is the figure left after all the people leaving the country is deducted from all the people coming into the country. Hopefully this isn’t the result of the Aussie’s populationcontinuing to be bad sports and sending back all those good Kiwis that they turned bad and they now consider too rough for their country. Seems hard to believe that someone’s bad character can be a reason to send them home to New Zealand when usually bad character is a pre-requisite for a leadership role in an Aussie sports team or politics. Think of how many future leaders they are deporting.

For us this migration trend continues to put underlying pressure on the housing supply. This upward correction cycle has lasted longer than most and seems to be drifting on, pushed from behind by the migration figures back into our country. Most of these people are not in a position to buy so we are seeing increased pressure on the limited rental stock, with our company reporting record levels of inquiry for houses.

This underlying population pressure will continue to push property and rental pricing in New Zealand. We are at a time when we should be moving into a slow market growth position as prices have caught up with where they should . But with the current population growth continuing upwards we have a conundrum with cooling price pressure meeting rising population pressure.

Next issue we will look at the local population growth versus the housing supply.

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barry.joblin@harcourts.co.nz