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.

empowering people through property banner -2

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.

empowering people through property banner -2

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

 

 

 

 

February 2018 – Newsletter

Contents

• Real Estate Lessons From Colin
• House Price Predictions
• Rentals and Rent Rises
• The New Government And What It Means For Property.
• The Media And Why I hate Them

Real Estate Lessons From Colinmoney tree
Back in the early 2,000’s I met a local farmer called Colin. Colin was building a rental portfolio for himself and his extended family. Colin concentrated on the low-cost areas that most people shied away from. He was the mystery man who would turn up at the auction without having been inside the property and he would bid. He was often the successful bidder and our company sold a good number of homes to him. We would often hear him say, in the modest, soft spoken and hesitant way of a farmer who spends many hours in his own company . “Well as I’ve just bought it I’d better go and have a look at it “ At that time he was paying about $30,000 for a freehold ex state house ,although I often heard him say how he had snapped up bargains for a lot less.

Over the years I hear about his progress through the grapevine and on the rare occasions that I run into him I would mention something like “ I hear you have got 50 Properties now”. In his polite and modest manner, he would usually let slip that he had a number usually about double what I had heard. The last figure I heard through the grapevine was that he and his family group had 200 properties and that his whole family were now involved in the business of maintaining a large rental portfolio.

Colin came to mind when I sold a property on January the 2nd smack in the middle of Colin’s specialist area for $220,000. I though if he has 200 of these then he is an exceptionally rich man. His properties would be worth over 44 million dollars. The property I had sold was rented out for $310 pw so applying that figure to Colin’s portfolio he may be generating a gross income of $62,000 a week or just over $3 million a year. Keep in mind that Colin paid around $30,000 and less for some of these properties, so at $310 per week, the property is yielding a gross return of over 50%.

Apart from having a great deal of respect for the man I have learnt a very valuable lesson from him. In Real Estate you don’t have to buy the best properties to get rich. The bottom of the market is where all the trouble is. You will get more meth contamination, rent arrears, tenant turnover and damage, but if you are prepared to tough it out it’s a sure-fire way to riches.

All property goes up in value, even the bad areas. Colin’s early purchases are worth over seven times what he paid for them in just 18 years and in all that time he would have been getting a rental return that should have covered or exceeded his loan costs. He has a business that can provide employment for his children and grandchildren and I bet his extended family are getting some of the best practical “ how to do it schooling’ that money can buy.

House prices predictions 

ask the crystal ball1Quotable Value showed their first drop in prices for Whangarei in three years . The average price dropped from a high of $500,800 in September to an average of $495,464 in October. This would suggest that the market has peaked and may be either stabilizing or on the way down.
In my opinion we still have more growth to come although I will revise this opinion if the next few months figures are also downward. We are seeing a greater number of first home buyers in the market and we are starting to see the Auckland investors back in our market. These seem to be the “Mum and Pop” investors who have now saved the 40% deposit and see the Whangarei market as affordable with a reasonable rate of return. The re-emergence of these lower end buyers will influence the averages downward.
 
Upon returning to the first company meeting on the 12th January it was interesting to see that of all the sales that occurred over the break all were under $500,000. Investment properties are selling fast and there will shortly be a shortage of supply and upward pressure on prices.
The fundamental shortage of housing is still the driving factor and until that is addressed prices are heading upward throughout 2018. 
Quotable value have the Whangarei market sitting at an even $500,000 at the end of 2107 and we predict that this figure will be sitting at around $525,000-$550,000 by the end of the year. The market rises are slowing but the demand is still there. We expect these rises to be more seasonal with the daylight savings months accounting for the majority of this growth with a slow period in the winter.
 
The prediction is 5-10% growth this year but more likely to be in the higher end of this range than the lower.
 

For a more detailed report into the forces driving house prices this year ,Tony Alexander, the BNZ economists , latest newsletter 15/1/18 is well worth a read.

Rentals and Rents  detective

Our team reported a big increase in vacant properties prior to Christmas with around 30 rentals sitting vacant. This was in stark contrast to earlier in the year when they had reported their first ever zero vacancies. This could look alarming, but I remember from my Housing New Zealand days that this was a common trend just before Christmas and just after.  People move out of their properties and share with friends and family to save a bit of money over the holiday period.
I am marketing two properties in the cheap price bracket where the house is overflowing with extra people, despite that not being allowed on the tenancy agreement. One landlord visited their property with me to find that one of the not allowed extra’s had occupied the garage, along with her equally not allowed dog. It’s something to watch for over this period as it puts extra strain on bathrooms and kitchen facilities and these temporary guests usually become permanent.
You can’t blame the tenants for finding ways to lower their overheads, but do you want that to be at your expense. Since writing this article the number of vacancies have dropped to 21 which is also in line with historic trends.
Rental prices have not gone up as much as predicted but all the supply and demand pressures that were there last year are still present and it is inevitable that we will see a strong rise in rents charged this year.
The prediction remains that rents are going to an average of $460 per week ( currently around $400) . We incorrectly predicted that this would be by the end of 2017. Its got to be by the end of 2018. Surely !

The New Labour led Coalition Government.

We have always tried to keep our personal politics out of these newsletters, although I’m sure some biases show through. So without judgement into the rights or wrongs of the current government we want to discuss what a labour lead Government means to Real Estate: –

Prices.
A labour Government has historically been good for house owners. Property prices tend to rise, and a recent press article showed that over the last 12 years house prices have risen faster under Labour than National, per annum. It seems very unlikely this will happen this three-year term as we are coming off a huge price adjustment period but history says it will.

There are some forces in play that will put pressure on house prices. The lower paid believe they are going to be better off under Labour. This has tended to result in more buyers entering the market to buy their own home. However, with the current prices and the loan to value ratios the hurdle between wanting to own, and having the means to own, will be too high this time around so we won’t see this increase.
Interest rates.

Interest Rates
We tend to see mortgage rates going higher under labour. This is very likely to happen again as by lifting the minimum wage you create pressure all the way up. Take for example a company that provides support for people who have left hospital on the way of cleaning their homes and basic health care. Most are on minimum wages with some having yearly rises above this level for length of service and skills. If the basic wage rises, so do all the rest of the wages to keep the differences in scale. The company is funded by the District Health Board for services provided so they have to go back to the Heath Board for the extra funding. The Health Board have to go back to the Government (or cut services) and the Government have to go back to you or borrow the money in competition with you. Anyway you look at it, there will be competition for whatever money is available and that means higher interest rates.

One of our successful predictions made in 2016 was that interest rates would stay low until 2019, (Despite some very learned and skilled economists saying they were heading up in 2017.) A big tick to Barry and a baa-humbug to the people who really know their stuff. This prediction however wasn’t based on any magic crystal ball or reading the tea leaves better than anyone else. It came from a press release that Graham Wheeler ( The Reserve Bank Governor ) made in early 2016 where he said that “Interest rates would stay low until 2019.” The reserve bank controls the interest rates so what they say must carry more weight than all the economist put together and the say interest rates are going to continue to stay low until 2019.

With strong pressure on inflation, especially wage inflation, it is inevitable that interest rates will be heading up by 2020

Supply.
There is no way on this earth that 10,000 new homes are going to be built this year or the next or the year after that. We don’t have the builders, the plumbers, the electricians, the land, nor the legislation that allows quick building. 10,000 homes a year is an empty election promise.

Building Costs
If the government step in and starts building (which is the only possible way towards this goal)you will see building supply companies and builders putting their prices up.The law of supply and demand applies to the people building the properties and supplying the materials as well. We have already seen this happen after the Christchurch Earthquake where builders doubled their hourly rates in just over two years.

The price per m2 to build will quickly go past the current $2,000 -$2,500 per meter standard and prices will reach around $3,000 per m2 by the end of 2020. That means the average 180m2 house will cost $540,000 to build. That is without the cost of a section. It stands to reason that if the cost of a new 180m2 house reaches $540,000 plus land (at say $260,000 per section) $800,000 all up,then that will put pressure on existing houses and they also will rise in cost .

The conundrum is this: – If you drive a substantial building programme you will drive the prices of housing up (not down) Houses will be less affordable thus defeating one of the purposes of building the houses in the first place.

Employment
Jobs get created under Labour. We are already in a growth phase for jobs with over 450,000 full and part time jobs being created since 2009. Labour will create more. Every labour Government since “Rogernomics” has increased the size of the Government sector. This coalition has signalled it intends to do just that with more Teachers and Police for a start. More jobs means more people are in a position to buy property so we will see demand from the newly employed . In most cases this will be where the household has gained two incomes and a mortgage is more affordable.

In summary we should be in for three good real estate years with a strong and growing buyer base. Many of these buyers will be in the lower end of the market so we may see average prices appear to drop a bit as these sales skew the graphs. But the reality will be the increased demand for these cheaper houses will be driving this price bracket higher. We are already seeing this in our January market.

The Media And Why I Hate Them ! Reporters

Maybe its because I’m getting older and a little bit wiser but I just cant stand how the media ( especially the NZ Herald) try to make the news rather than report it. For over a year now they have been predicting and reporting an Auckland housing crash. Take this headline on the 11th January Herald,
“House Sales Plummet in 2017 ” by Holly Ryan.
Higher prices,higher deposits ,finance constraints and lending tightening has seen the number of houses sold in 2017 plummet….”
The heading and lead paragraph are slanted to show how the Auckland market had tanked. It is only further down the script that you found out they were only talking about the number of sales which had declined . House prices had actually gone up by 6.6 % over the year. The slowdown in sales is much more likely to reflect a shortage of houses for sale than a shortage of buyers. A more accurate headline would have read

“ A shortage of listings is slowing the numbers of sales and putting increasing pressure on existing prices “ .

And then on the 18th January the heading
“The supply of Auckland Rentals drops 35% “ by Aimee Shaw
“Aucklands supply of rental properties has dropped 35% while the median weekly rent is predicted to spike to an all time high. The number of rental properties coming on and off the Auckland Market is down 35%compared to December2016 and rental prices in the region are up 3.9 percent.”
It turns out these figures are a press release from Trademe. The supply of houses hasn’t dropped by 35% in Auckland. Its just that Trademe experienced a 35% drop in the number of rental listings they received compared to December 2016. The reality is when rentals do get harder people stay in one place rather than house shopping  for better properties and locations, therefore the turnover rate drops. We have been seeing this trend all year. It is true that rentals are getting in short supply, which is a stupid but inevitable consequence of a Reserve Bank that deliberately makes it harder for people to buy rental properties. But to headline that the supply has dropped 35% is just ridiculous.
And then to say that “rental prices are up 3.9%” again shows the complete lack of understanding of the reporter. Trademe are an advertiser. They only know asking prices . They don’t know what the property actually gets rented at. To report this as factual just demonstrates the low levels of investigate and deduction skills of many of today’s reporters.
A more accurate headline would have been
A growing shortage of rental properties in Auckland is resulting in a 35% reduction in advertising”
We are in an age when reporters take press releases as gospel and completely fail to investigate and understand the true story behind them.

empowering people through property banner -2