The Rental Glass Ceiling Smashed! .
In the last newsletter we mentioned that we thought rents had peaked and reached their glass ceiling. Like all good predictions we want to totally change that view. All the evidence from “Harcourts Just Rentals” is saying that rents are on the way up and the pace is increasing rather than slowing down. For example the average rent paid to “Just Rentals” in January was $376, February this year, $412 PW and for March it’s already at $421. What we were seeing as a ceiling, is in reality a point of resistance. A pressure point is where tenants were baulking at the increases and holding off committing to the higher rents. But once the average $400 PW barrier was broken rents rose sharply. Further evidence that $400 is a resistance point rather than a ceiling is that properties over $400pw are taking longer to rent than below but they are still being let. As $400 plus becomes the norm the resistance will evaporate and we will see the acceleration seen in the last three months until the next resistance point probably around $450
Its Tough for Tenants
It’s a very competitive market with lots of demand and not enough supply (houses). Just Rentals had over 1000 applicants for the month of March, so the demand is huge, with only around 15-20 available properties at any one time. There is only one way rents are going to go and that is up. There are a larger number of quality tenants around who have the ability to pay more, and they are paying more for good homes. That’s not to say they are doing it happily but they have no other choice. If they want a reasonable house in a reasonable area then they have to pay the market rent and that is going up. (That’s for everyone except my daughter and son-in law. Diana ( Mother ) promised them that she wouldn’t put up the rent on the house they rent ….ever …so my master plan to live off my children is completely shot !!!)
We would expect average rents (3 bedrooms 1 bathroom) to rise to an average rent of around $460-$470 p.w by the end of the year .
In an earlier publication we did an in-depth look at where to buy property in Whangarei and what to look for . We have updated the relevant information and the link to the earlier publication is below.
An updated summary of where to buy and what to look for:-
Key things tenants want :-
- Access to good schools .( The hottest demand is around good primary school zones )
- Well maintained houses. ( if you don’t have pride in your home you can’t expect to attract tenants who will)
- Good internet and phone communications
- Safe areas
- 3-4 Bedrooms
- Proximity to town ( 2 categories here…. Walking distance, equals central areas or driving distance equals no more than 20 minutes from CBD)
- The ability to have pets ( Can cause more wear and tear but tenants stay longer and you can ask a premium rent. So many good tenants get over looked because of this somewhat unreasonable restriction )
- Off main roads. Always the last properties to rent because of noise.
- Insulation. ( Compulsory from 2019 on for ceilings and reachable underfloor. Best to get in now before the rush and inevitable rise in installation costs )
- Kensington/Avenues/Woodhill. Remain popular areas for tenants. Purchase prices have gone up so expect a lower cash flow return, but the capital gain is good. ( The average 3 bedroom one bathroom is getting $400-$450 )
- Tikipunga. Still some resistance to this area based on tougher schools but with the supermarket and the new “Totora Parkland” development this area is certain to move ahead over time. ( Average $340-$380)
- Raumanga. Still a lot of resistance to this area but it has all the hallmarks of a good investment area with the hospital, the tech, and numerous big shopping areas all close and just 5 minutes from town. ( $340-$380)
- Morningside. Remains a hot rental area with its sunny slopes and proximity to town. Steeper sections create some challenges for both tenants and landlords. ($380-$400)
- Onerahi. Becoming an increasingly popular area with a big upside still. Proximity to town and improved access. WDC has purchased all the land for the Onerahi bypass so the through traffic will halve. Hot buying. ( $380-$420)
- Riverside. One of my hot picks in May 2015. Very popular with tenants with its proximity to town and access to the “loop”, dog park, and other facilities. Steep land creates some maintenance issues so be careful what you buy. This suburb still has plenty of upside. Rents will rise as more people discover the area. ( $340-$380).
- Kamo and Maunu. Very popular areas but hard to find properties that give a return. ($450-$480).
Avoid low socioeconomic areas. Hard to rent and you get the rougher tenants who don’t get the opportunity to rent in better areas. (Otangarei, The sunken Village Onerahi, South Raumanga) They are cheap for a reason.( $250-$300)
Some Considerations for Existing landlords.
- Have your property meth tested between tenants. It’s a small cost ($200) but helps with insurance issues, responsiblity, and generally safeguards your property from tenants thinking about smoking in your property.
- Smoke Alarms. Wired in ones are better because the batteries don’t go flat. These can save your property as well as the lives of your tenants
- As part of my research for this article I interviewed Renee Wilkinson, (Business Development Manager for Just Rentals.) She told me about how she often gets enquiries for a property in a price range of say $380 PW but then directs the person to a property with a much higher rental that better suits their needs of say $450 PW. A property the tenant would never have considered because it wasn’t in their budget, but once shown the property can see the value in an extra $70 per week. This cross referring is a great example of how a good property manager can add value to you as the owner. In Real Estate sales around 40% of our sales are directly from taking a person who has called on one property to another.
Here is a link to the earlier article. May 2105
They are Printing Money and its Going to Raise Land Prices Worldwide
We are in an unprecedented time of “Quantative Easing ‘which is a digital version of money printing. In this article we discuss how the long term effect is certain to make property and land prices rise world-wide. To read the article Land going Cheap!
Interest Rates are Most Likely to Stay Low ( below 6%) for some Years to Come
We have written a detailed report into our perception of where interest rates are heading this year and next, based on a recent statement from the Reserve Bank Governor together with information about the state of the world’s economy. Once you take the temporary effects of Quantative easing out of the world economy, it is still in deep Doo Doo!
Basically apart from a few token increases, interest rates are going to stay historically low and under 6% until around 2019 and maybe longer. For the full article click on the link below, but before you do, we mentioned the link between our NZ interest rates and the world’s largest economy the USA. We expected the US Fed to make some token moves to lift interest rates in spite of the evidence that the US economy is still in trouble and in too fragile a state to allow any serious lifting. We quote the reactions of two commentators about the first lift in the USA in 8 years. Both comments confirm the current rate rise is more about politics than economics.
Hoisington Investment Management’s Lacy Hunt on the Fed’s risky strategy:
“This is the first time in more than 50 years that the Federal Reserve is tightening when income tax collections at the US Treasury are declining. Those tax collections are weaker than when we entered the last four recessions. That’s a risky strategy.”
The Boock Report’s Peter Boockvar
“It is an economy killer, but it has to happen. There is no way the Fed is going to be able to normalize interest rates without having a recession.”
Signs We Are Over The Peak
It’s still looking like we are at the top of the growth curve but there is still more to come. The reserve bank have hinted they see more upward price pressure coming as a result of immigration increases combined with new builds being slower than needed to address the shortage.
In a recent speech the reserve bank Governor, Graham Wheeler said:-
“House price inflation has moderated, and in part reflects loan-to-value ratio restrictions and tighter lending conditions. It is uncertain whether this moderation will be sustained given the continued imbalance between supply and demand. “
Although a little more cautious about our earlier $80,000 price rise prediction this year (because we are seeing a drop off of the day to day activity and einquiry in the market) logic says we have a way to go yet. There are subtle hints that Auckland may be over its slow growth period and about to enter another high demand phase as the inconvenient truth remains that there are not enough houses for the population growth and therefore the old supply and demand rule must apply.
Whangarei is still well behind our traditional price gap with Auckland and we have over $100,000 in price rises to close this gap to our historical level. Emotionally I’m not so confident of the prediction but logically it has to be there! I’ll go with the logic on this one!
Breaking News !!! Corelogics March property figures are just out this morning confirming our prices are still rising. The average Whangarei property price is now $472,081 a rise of just over $4000 on the previous month confirming our prices are rising at around $1000 per week. That’s slower than they had been rising but still heading up!
“Show me the Money Honey “Ian Wishart
Late last year I had the very unpleasant experience of being diagnosed with a Melanoma Skin Cancer. It was a total shock to me and my doctor, as it didn’t look like the typical Melanoma. My father died from the same condition, and his first cancer was just a few inches away from where mine was located on the left forearm. I had a hectic Christmas as I underwent surgery to remove the effected skin area and have two sentinel Lymph nodes removed on the 29th December. Thanks to the quick response and the magnificent after care I am in the clear, or as the consulting surgeon so casually said “You have dodged the bullet …… (Long Pause)…….. This time!
I felt I was in very capable hands throughout the process and thanks to all involved.
When I heard a radio interview with Ian Wishart , the investigative journalist and much published author, about a link between taking cholesterol pills (Statins) and cancer, I decided to get his book “Show me the Money Honey “ . I have yet to read a critique of his book so may be talking too soon but have to say it has immediately changed my views on Statins for one, but also salt intake, chocolate and fats. And they are the only chapters I have read at the time writing this article.
Basically he says most of the western theories about what levels of certain products are good for you are based on 1960-1970’s surveys and that modern 2015-2106 surveys are showing that the levels being currently touted are not only wrong but in fact bad for your health. If you practice the current standards of salt, fat and cholesterol levels you actually increase your chances of dying rather than decreasing them. He goes on the show how 40 years of practicing these current WHO standards, have successfully lowered overall public levels in the intake of these substances, but the result is more people dying from related diseases rather than less.
Amongst the many researched and documented studies he outlines:-
- There is a positive link between Cholesterol and the body’s immune system that fights cancer. ( I have been on cholesterol pills for about 8 years)
- You have a higher chance of dying from a heart attack from a low cholesterol count than medium to high. In fact Cholesterol is an important part of your health system especially as you get older.
- Dark chocolate (70% cocoa) is very good for you. In fact you should aim to eat around 8 pieces a day
- There is a bell curve where salt is good for you and then bad for you and the good starts above the World Health guidelines. While there is a level that is too high, the research shows the levels being touted as healthy in the western Diet are too low and damaging to your health.
- Coffee is very good for you and helps reduce a number of ailments including Alzheimer’s
I think this book is essential reading for anyone on Heart and Cholesterol pills or low salt diets. I got mine from ‘Mighty Ape ‘ Books Online . The radio ad said it was at the Warehouse and Paper Plus but when I went to the Warehouse they didn’t have it.