Why Me?

Some years ago, I was standing in front of this famous Van Gogh Painting “Stary Night”. (It is in the Rijksmuseum in Amsterdam).  I remember standing amongst a crowd of other people and being totally under its strange and fascinating spell. I remember thinking “that’s so simple I could paint that!”. Years later I tried, and tried, and tried, and although some of my work was passable, I could never capture the movement, colour, and mood his painting drew from me.  (Incidentally, the view is from his asylum window, so he was quite mad at the time.) 

And strangely this relates to Real Estate sales.  If you asked me today   “Why would I use you , what can you do for me that I cannot do for myself?” or What makes you different from any other agent? I would have difficulty answering.  I could give you all the standard marketing, knowledge and negotiating answers, but that is not really any different from what anyone else would say.  What I have is 35 years of Real Estate sales experience and that has built a set of skills and a special kind of instinct.

  1. It is not what I do, so much as when I do it.  
  2. It is not closing the sale but knowing when and how to close it to your advantage.
  3. It is not simply negotiating the price, but knowing how to read the other party, so that I know what their top dollar is before they know.  
  4. It is not simply marketing your property through the various mediums but knowing how to target the right buyers and how to enhance and showcase your home’s special features and benefits. 
  5. It is not simply getting an offer on your property, but how to add value and desire to your home so that you get the best market price.
  6. It is not about just knowing the market today but being able to guide you through what is going to happen tomorrow.  

Based on my extensive experience I have a proven track record of getting the best price, far in excess of the fees you pay.. 

So call me if you are thinking of selling your property.

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

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

The Current Situation in our Office

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

Section Development Down 

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

Finding lions in Africa!

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

Super low Interest Rates and Job losses

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

Banks Being Kind.

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

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

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

My Old Enemy the Media and Job Losses.

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

Debt levels

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

Election Year

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

A Close Relative- 

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

Prediction

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

Roll on the Vaccine.

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

Your February 2020 Newsletter

Where the market is going in 2020.

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

2020’predictions are: –

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

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

Confession Time

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

How Fast is Whangarei Growing?

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

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

Auckland and the NZ Herald.

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

Tammy’s Rental Areas

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

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

 

 

 

Market Predictions.

Contents

  1. Have We Reached the Peak of the Growth Curve .
  2. Thanks for noticing
  3. Homelessness and the Link to The Reserve Bank
  4. Rental Comment
  5. The Great Meth Myth Revisited
  6. Donkey Business
  7. Out of the Mouths of Babes

 

I have just returned from a lovely week in the Kaweka ranges with two fine men. I enjoyed a wonderful time with two great personalities. Both with new-borns so their priority was catching up on a bit of sleep. Lots of laughs, a few gut busting walks, serious games of “Risk” late into the night, loads of trout caught in the most pristine of rocky rivers, with most released. No deer this trip but they were there laughing at us,  and the big bonus is that both men were my sons!

price-rising-pic-by-julz

Back in November 2015 we predicted that the correction cycle was about to kick into life in Whangarei and owners should hold properties. I started that newsletter with the words “the winds of change are in the air”. What followed was two years of growth with the average Whangarei property rising by over $120,000 .  We are beginning to see early signs of the same “winds of change”.  It’s more of a gut feeling, supported by minimal evidence, but it does seem the Oomph! has gone out of the market . That’s not to say the market has stopped rising, far from it. The market has a lot of growth in it yet, but it is starting to look like we may be at the peak of that growth curve. While the growth will continue we are seeing the early signs that that growth rate will start to slow down.

In a recent conversation with a senior bank manager, he revealed that the 40% deposit requirement was having an effect with a slowdown in lending. He also mentioned that it was affecting all the wrong people, the first home buyers and the Mum and Dad buyers picking up a retirement income. The seasoned investors had plenty of equity and therefore less trouble borrowing.

We are seeing lots of sales happening, but the panic buying seems to have gone out of the market and we are not seeing the same number of buyers at open homes. We are still getting multiple offers on properties but maybe two or three contracts as opposed to the 6-7 we were getting in the peak.

The one thing about Real Estate is that the market moves slowly and we as Agents tend to see trends long before they become evident. We are probably at least 6-12 months away from any significant slowdown, but we think it is coming.

Auckland has been the key driver of our market and we continue to see a wave of Aulander’s taking the opportunity to cash up and buy in the provinces. This is not showing any signs of slowing yet, but will if the Auckland market continues it’s slow down and properties become harder to sell. Again we are some way off this happening as the Auckland market is still growing at around 15% year on year. Should this growth slow to around 4-6% we will see the effect in the provinces. Basically as long as there is someone to buy the Auckland properties the Whangarei market will bubble along, but should these buyers dry up then the slowdown will be here.

Its not that the market is going to hit a brick wall, far from it, it has considerable momentum and our predictions that the average price in Whangarei will hit $500,000 are still odds on, ( October sales reached $451,874), but what we are seeing is the first signs that the market may be changing. We still predict growth through this year and into next year but once it peaks in the next month or two it will gradually start to slow. Growth is more likely to be at saner levels.

We also have to be aware that the Real Estate market generally has buying seasons. The February through to June months are the busiest with October being the next. If the boom market slows down then the effect of the selling season has more influence and we see bursts of activity in these months with quieter times between

Tip.  If you are holding a property to get the capital gain, its time to start thinking about selling it. You have plenty of time, but don’t hold off too long as you want to be selling into the rising market while it still has plenty buyers. If you try to sell when the market has slowed you join a rush of other sellers doing the same and you may have difficulty.

Thanks for Noticing .

thank-you-jpg

We have had a number of people on the mailing list ask when the next newsletter was coming out. . It’s good to know it’s been missed. The last issue was in August so it has been a while. We try to put these out at least every second month, but don’t want to just be writing them for the sake of writing them. We want to make sure there is something to say and the last two months have been more of the same. A rapidly rising market, with year on year growth hitting 23.9%, in line with our prediction of 24%.  So basically while it’s been an exciting time for property owners there has been nothing new to write about. At a seminar we attended recently, we were told that if 3-7 % of the people on your mailing list read your newsletter it is a success. We currently have over 70% opening this newsletter. We really appreciate that you read it and thanks you for your support.

The Recipe for Homelessness Courtesy Of The Reserve Bank!

homeless

We have long advocated for an untouched Property market where the regulators stay out of the residential market and let it find its own level. Every time the powers that be intervene they create a crisis in another area. A past example is the building industry where the boom and bust cycles created by rising and lowering interest rates have resulted in our country now having to import builders to meet current demand and a serious lack of new building. Along with this trend we now have the 40% deposit ratio and its unintended and dramatic long term effects.

The first is increased homelessness. Imagine the supply of rental houses is like a pyramid. The best tenants get the ones on top of the pyramid, as the tenant’s suitability declines, they move further down the pyramid. The top of the pyramid is made up of quality homes in good areas and the base of the pyramid is made up of poor quality homes in undesirable areas. If the supply of good quality rentals reduces, (the intended effect of the 40% loan ratio to stop investors and speculators) then the tenants for those properties take the next best one they can find further down the pyramid. They are assured of getting it because they are quality tenants and they will squeeze out the ones below them. This process continues right to the bottom of the pyramid, where the people who are “challenged “ as tenants find they have no choices. There is nothing available for them and they drop out of the pyramid like so many water drops falling from a squeezed sponge. When the 30% deposit ratio was introduced and sales slowed down we saw an increase in the number of homeless in Auckland. That will be nothing to what is about to happen with the 40% ratio, if the Reserve Bank is successful and drives the Mum and Dad property investors out of the market. The rental supply will not keep up with demand and the vulnerable and least able to advocate for themselves will have no options but the streets or temporary shelters provided by charities.  A new wave of homelessness will be created because of the unintended consequence of the deliberate and artificial interference in the value of a house.

Basically the country needs the financial input of these investors, be that Mum and Dads or long term professional landlords. We need these people to be pumping their capital into housing. If they don’t, and we are seeing a slowdown now, then we as a country have a consequence which is more homelessness.

However there is a solution and that’s the second consequence! The government of the day can step in and build thousands of rental homes for these people to fill the gap left by the private landlords! But this isn’t easy. Firstly where are the builders going to come from and secondly where is the land?. When I managed Housing NZ for the Whangarei District in 1992 the Crown owned 72,000 state houses. By the time I left in 1994 they owned 68,000 homes.  I haven’t got the latest figures but information from the various census figure shows 69,000 is the current figure.

Based on population growth we are short around 15,000 state houses now. At a conservative cost of $400,000 per house and land package, we the taxpayer would have to find 6 billion dollars in extra taxes to fund these houses. And that is without the existing private landlords deciding they want to pull out of providing rental housing. Currently the private landlords provide around 355,500 (Census 2103) rental houses while the Government provides around 69,000. If just 10% of those landlords decide they don’t want to be owners, then the state will need to purchase or build another 35,000 homes to fill the gap. That’s another 14 Billion dollars of extra taxes needed.  We can’t have it both ways.  Either support the landlords who are doing their bit for our country by investing their capital in housing, or be prepared to take up the slack and pay way more in taxes to provide more housing. Alternately  expect a huge surge in homelessness.  I’m pretty sure we all know which way we are heading.

Since drafting this article the Government has released its $300 million , 1,400 extra temporary bed places for the homeless package. We now know which option has been chosen. In a war its called “collateral damage”

If you are looking for the early warning signs that this is happening right here in Whangarei then read the next article.

Rental Comment.

for-rent

The lovely Renee Wilkinson , Business development Manager for Harcourt’s Just Rentals , has been talking about an increasing trend she is  seeing. The number of  properties that they are advertising for rent has dropped by over 50 % year on year. Down from Mid 150’s last year to 50-70 this year .  This means there are less rentals available and they being filled faster . Because of the lack of choice more tenants are staying put rather than moving around increasing the shortage. The rental market is already starting to hit a crisis level with good, well qualified people,  unable to find a rental property.

She has also stated that they have 6-7 well qualified tenant applicants for every good rental property. This demonstrates a strong growing demand for rental properties and the flowing  down the pyramid effect discussed in the earlier article .  The good news for landlords is rent  rises are happening  as demand is clearly outstripping supply ..

meths-pic-1

                                          The Great Meth’s Myth.

We are delighted to see some common sense finally coming through on “Meth’s/P” test levels  . The Health Department have heeded the concerns expressed by Dr Nick Kim  a senior  lecturer in Chemistry from Massey University,  that they were applying the wrong measurement to houses where “Meth’s” had been smoked rather than manufactured, and have subsequently relaxed the standards .

The 0.5 level remains for “P’ labs where it has been cooked, which is what the test was actually designed for, but drops to 3 times the level at 1.5 for houses with carpet and 4 times the level at 2.0 for houses that don’t. This is a common sense approach although still ridiculously conservative as Dr Kim sated that the safe level was more like 20 and that he would be happy for his kids to live in anything up to 12x.

The amounts are still way too low for any Health risks but at least this should solve some of the ridiculous situations, where people have had to clean houses or even replace interior walls , for miniscule amounts of meths,  based on a false understanding of dangers.

One important comment Dr Kim made that all landlords should remember, is that rather than rushing in with expensive cleaning options, try opening windows for a while . The “P” contamination from smoking does break down over time just as cigarette smoke does. His comparison with cigarette smoke is a good analogy to keep in mind.

A special thanks to Dr Kim for his enlightening work in this field and the restoration of some common sense in the great bureaucracy. This man will save landlord millions of dollars

For a look at the earlier article click here

donkey

SOME INTERESTING STUFF ABOUT DONKEYS.

One of the best aspects of Real Estate is the people you meet. From all walks of life, with the experience and diversity of ages. As a result you hear the most interesting bits of information. A few days ago it was Donkeys . The information came from four different people all in the same day.

The first gem was Donkeys live a long time. Your pet braying machine can live for up to 50 years! No wonder they get so smart. This came up as I am about to list a property where the pet Donkey has stayed as part of the chattels. The Donkey has been there for as long back as anyone knows yet the property has changed hands three times.

The second snippet if that Donkey’s keep bulls in line. If you have bulls run a donkey with them. The Donkey will be peacemaker and will stop the bulls fighting. One Donkey will keep about 30 bulls from fighting. They do this by kicking the bulls and biting the bulls on their rumps when they get aggressive, and if that doesn’t stop them they will bite them on the testicles!! No wonder the bulls fall into line.  There’s nothing like a nut cracker from a large toothed Donkey to take the fight out of you. !  Perhaps they should be introduced into our prisons.

And then, American sheep farmers have been known to run Donkeys with their Sheep in the wild country. Donkeys have an aversion to any canine and if they are in their patch, will chase them relentlessly, and as we all know “they kick like a mule”. The Donkeys keep Coyotes and dogs away from the flock. Apparently they can also bite down on a Coyote’s neck or back and throw them through the air.  What a useful if slightly noisy animal.

From the mouths of Babes

little-blond-girl

Just an aside , My sweet, angelic, blonde, butter wouldn’t melt in her mouth, three year old  granddaughter fell hard on her rump, at her Great Grandmothers 60th Wedding anniversary, after trying to scale a table.  She has two older brothers who teach her all sorts of strange language, as evident when she loudly proclaimed to the throng of oldies who had gathered around her concerned about her wellbeing.  “ Oops ! think I might of cracked  my ball sack!”

                      

August News letter

Barry - Email Header

Whangarei Real Estate Market Stays Hot Over Winter

price risesWhangarei property price rises continue to accelerate. The average price, as per Corelogics latest August release, is $421,750. Rising at 19.9% year on year. That’s growth at $1,614 per week for the average home in the city. While the press gnash their teeth in fury at the ‘Housing Crisis’ most home owning New Zealander’s will be rubbing their hands together as they see their wealth growing. At the beginning of the year I predicted we would see growth between 17.5 and 22.5% this year. I also predicted that this growth would accelerate in the first part of the year and start to slow towards the end of the year.

I am never wrong small

I suspect I will be wrong on both counts. Growth is very likely to accelerate beyond 22.5 % as Tauranga has now hit 25.7% and Hamilton has hit a massive 31.5%. Hamilton’s growth rate is now faster than Auckland’s ever was. So the chances are Whangarei will hit a growth rate of around 24-26% before starting to slow early next year

Meanwhile Auckland has slowed down to a mere 16%. Auckland’s growth rate has been consistently slowing for over 6 months now, showing it is heading towards it peak. But keep in mind inflation is running at less than 1%, bank deposits are around 2% so 16% growth on an average Auckland price of $992,000 is still $2,836 gain per week. So 16% growth in Auckland is worth nearly double the value that 20% is to Whangarei. At the current slowing growth rate Auckland will peak towards the end of next year.

The reserve bank has been doing it level best to reign in the housing market and the latest rise in deposit requirements is the latest bucket of water on the Auckland housing inferno. Investors now require 40% deposit.  This may have a short term effect but as investors usually have other property they can use to leverage deposits and as house prices are rising rapidly therefore increasing the same investors property equity as we speak this will have, at best, have a short term effect.  The issue which is still there is supply. When you have a shortage of houses then the market will continue to push prices up regardless of any other tinkering.

Jono Ingerson, Head of Corelogic says:-

The Reserve Bank’s own analysis expects these measures to slow property value growth by 2% to 5% less than would have been the case without these restrictions. So if values in an area were going to increase 15% then they would now slow to say 10%. They don’t expect prices to crash.

If we apply this thinking to Whangarei then we could see growth over the short term slow down to around 19-20 % from the projected 24%. That’s still very rapid growth.

He goes on to say: – “However investor groups I have spoken to over the past two weeks are not talking about pulling back, instead how to get around the lending limits. This includes splitting their portfolio across different lenders, including non-bank lenders who at this stage are not subject to the RBNZ restrictions.

The reality that keeps coming up is nothing is going to change long term until the building supply is increased. Investors are smart people and they will find their way around the restrictions until its no longer worth their while.

The most important part of the latest tinkering is that new building is exempt from the deposit restrictions. . I think we will see more investor interest in new builds which will be great for the economy and will over time sort the fundamental issue of housing supply. This translates directly into rental demand with our sister company “Harcourts Just Rentals “who experienced their highest ever demand for rental properties with over 1000 requests in July. Rents are rising and the time is ripe for investors to look at the European tenancy system where rentals are more like commercial leases. Longer terms (up to 20 years) with rights of renewal so the tenants can on sell their rental lease which encourages them to develop the grounds and improve the décor of the property.

We see no evidence, be that, level of enquiry, open home attendance, or the number of contracts being presented, to suggest there is any lessoning in activity. Whangarei House prices are still headed to an average sale price of $500,000.

The problem with Real estate is trying to find the right information to assist with decision making. There are a huge number of people who constantly get quoted in the media who have massive personal barrows to push. The list is long, but specifically includes Financiers, share brokers, many economists, and basically all journalists. The most unreliable source of Real Estate opinion you will ever get will come off the pages of your newspaper, or from the screen of your TV or smart phone. News stories are written to shock and intrigue you, and they seldom get their facts right before launching forth. The opinions come from everywhere except from the people at the coal face. For example the press, based on some pretty weird interpretation  of the real estate statistics,  have been predicting the Auckland market has peaked and is about to burst for over two years now, while the  evidence says its slowing down a little but has  some  way to go before it peaks .

I read with amusement an article by Real estate Legend Sir Bob Jones  who wrote  in May this year, about  two “media darlings” who are constantly quoted as reliable sources of market trends. Bernard Hickey and Shamubeel Eaqub.  Jones with his usual wit and satire writes “ As an aside , his ( Eaqub’s )” wisdom” on this issue , along with Bernard Hickey’s, the latter a doomsayer without peer, should be seen in the light of both some years back ,selling their Auckland homes and fleeing to the capital to avoid their claimed imminent Auckland Housing price collapse. In light of subsequent events, those brilliant judgements have cost them considerable loss of wealth, which rather weakens my life long militant atheism. “

The Current Case for Buying new build New.

If you are looking to invest new, or to replace what you have, there is very strong argument to buy new. Most real estate agents won’t push for building new as the builders have their own salespeople and the agent gets left out of the commission loop. bleeding heartYes I know your heart bleeds for us, but there are nine very compelling reasons to consider this in today’s economic climate.

  1. 20% deposit will get you in. Unlike existing homes, the new 40% deposit criteria do not apply to building new. Therefore building for the average New Zealander is now a lot cheaper in terms of how much you have to have saved yourself.
  2. It’s going to cost you more than the second hand house you were looking at (around $550,000 in Whangarei) but consider this. You will get a long term (5-10) guarantee on the house. It’s a bit like buying a new car, you know you won’t have any maintenance costs for a number of years. Your home will have the latest weatherproofing systems and treatments. It will have the latest technology in insulation and heat retention with most new home buyers saying their power bills halved. You can guarantee it’s all new and has none of the maintenance issues an existing property may have, nor is “P” contamination going to be an issue.
  3. You will get a higher rental as these properties are sought after by tenants who will pay a premium for new properties. Most new builds are renting for around $500 per week, which is a return of 4.7% on a purchase of $550,000. Your tenant is going to come from the top of the rental heap and is more likely to stay longer and look after the property better.
  4. New build suburbs have a two year period when they look like a jumble of roofs and bricks. But then the planting kicks in and the boundaries become clearer. The subdivision takes on a new appearance and historically prises rise. Established planting seems to put around $50,000-$70,000 in value onto all the properties in the subdivision.
  5. New house prices are based on the value of the land plus the building costs. Building costs rise steadily while land is more sporadic in its rises. So the next house that gets built, that is similar to yours, is going to be dearer than yours thus ensuring your value is increasing also.
  6. The work required to add value is going to be within most people DYI skills. Planting gardens and lawns, building birdbaths, and maybe some painting are going to be easy projects that most people can do themselves.
  7. Chattels Depreciation. While you can no longer depreciate your building costs you can depreciate your chattels. With a new build there is clear evidence what the chattel actually cost so there is a start figure to base the depreciation on which is not the case with existing properties. The depreciation rates are high with many items around 25-30% and when you sell you don’t have to pay any of this back. The average new build will have a long list of depreciable items. (Carpets, Hot water cylinder, fencing, Driveway, Decking, Dishwasher, Oven, Drapes, Heat Pump, and light Fittings, to name a few.) . You will need to get a chattels valuation done which will cost about $600 (tax deductible) but as can be seen from the list above, this cost could easily hit $40,000-$50,000. Depreciation in your first year could be around $12,000. It will drop quickly after this but at the top tax rates this is worth the effort
  8. You are doing your country proud. We do have a shortage of houses in many parts of New Zealand. Whangarei is one of these areas. The only way that property prices will stabilise is when there are enough houses. So by building new you are doing your bit to alleviate a very real problem we have. This is in direct contrast to both the USA, Ireland and parts of China where the number of houses was greater than demand therefore causing prices to drop.
  9. It is very good for our economy. New building creates jobs. Building is a high labour intensive industry that flows through all the groups of tradesmen, to the suppliers, to the landscapers to the draftsmen and so forth. Building new gives the council another rating opportunity thus increasing the wealth of your district. Building is currently one of the driving forces in New Zealand’s economic recovery, being recognised by the Reserve Bank along with tourism and immigration. Starting with the Christchurch rebuild and now driven by Auckland it is one of the main factors setting our economy apart from most of the rest of the world.

 

Rental demand increasing

The statistics from Harcourt’s Just  Rentals show a growing amount of inquiry for rental property. This is unusual activity for the winter months when people tend to stay put more. It is another sign that the Whangarei population is growing more rapidly than the WDC has planned for . We would expect a small delay and then for rents to increase in line with the demand for properties. All great news for landlords. ( Figures supplied by Renee Wilkinson the person to talk to for  property management ph.  021892443)

Rentals Jpg

 

 

 

Oi! Oi! Oi! Strewth mate ! The kiwi population just keeps getting bigger !

Our net annual gain in migrants is increasing pace with an annual gain of 58,300 migrants.

This shows an increasing trend as more people arrive in New Zealand than depart. This is a far cry from the old 1970,s political slogan “Would the last person to leave New Zealand please turn out the lights”

When the month of June figures are broken down we see some interesting trends

Aussie diggerThe largest single category of 24,100 people, were from Australia with two thirds of those being New Zealanders returning. When you combine that with the fact that 64% of total migrants were between 15 and 35 years of age we can see that it’s our young returning. The great Aussie dream seems to be over. It’s the third month in a row where there have been more people coming into the country from Australia than are leaving. We haven’t seen this happen for 20 years. However before we read too much into that, it is a paper thin net gain of only 100 people. Let’s face it we still have 24,000 people leaving the country for Australia so the 100 net gain looks pretty slim.

The next biggest group are from the United Kingdom at 13,500 with a high percentage of these being Kiwis returning to our shores. . Very close behind them are the Indians with 13,300 and the Chinese with 10,300. Half of the Chinese migrants have student visas so are here to study.

Most of the Kiwi’s returning will be bringing some money back with them and will want to get onto the property ladder. These returning Kiwis are less likely to gravitate to Auckland as they know more about the rest of the country , so may help move property demand to the provinces where the returnees can align themselves with proper winning  Rugby teams .

(Researched from Statistic NZ June 2015 press release)

July update… The good news just keeps on coming!

 

money treeJust when I thought I was done, some new bit of news comes along that gets me excited again. Excited because I own property and like most of you, property is my key asset. If it’s worth more money I’m happy as it increases my wealth. I know it’s supposed to be bad for the economy but seriously I question the logic behind that. 

So for the great news… Core logic have released their June figures. Growth in Auckland year on year has now hit 17%. Ya! Boo! Sucks not to be an Aucklander. Tauranga has now hit 7.3% up on last month’s 6.75%. But the really exciting news is good old Whangarei has leap frogged Hamilton in growth hitting 4.6% year on year. Last month we had 3.9%. So just as predicted the growth rate is accelerating. What I did not see was Whangarei’s’ growth rate passing Hamilton’s. Whangarei now has the third fastest residential housing growth rate in the North Island. 

The most likely cause is Aucklanders! They are to blame for everything good and bad that happens in New Zealand. Earlier in the year we discussed the ripple effect as Aucklanders took advantage of the record prices in their city and moved out of Auckland and purchased in the provinces. It made sense that Tauranga would grow faster than Hamilton as it is a smaller version of Auckland with its harbour location. However the same logic applies to Whangarei. It has the harbour location and therefore logically should appeal to Aucklanders, more than the complete change in geography that Hamilton provides. And although the Aucklanders leave the big city for a quieter provincial life they do bring some of the city with them , which is great for the cafes and businesses in town that benefit from the different spending patterns of city folk! Not so good for the tractor salesmen and fertilizer merchants but good for the boat shops and real estate agents.
The long and the short of it is that the property growth rate in Whangarei is going quicker than I had anticipated and I now think my earlier prediction that property growth would hit 7-8% by Christmas is conservative and a figure of 9-10 % is more likely. 

Tip! If you are thinking of buying, factor this in... That property you are looking at for say $400,000 now is likely to be $450,000 in December. So rather than risking losing the property by beating the owners up with tough negotiating, you are better to pay their price, secure the property , and rely on capital gains to get you that bargain. Come Christmas the price you paid will look cheap.

Tell us, are you moving on the property market? Buying, selling or both? 

Are property price rises bad for the economy? 

price risesI met John key for a few brief moments after a conference. He really didn’t have time to speak to me but as we walked down a corridor flanked by his entourage I did get to ask him a question. I asked, “If small business is the biggest employer in New Zealand, and the banks want housing collateral to lend to small business, isn’t property growth a good thing as it funds small business?”

For me this comes from owning a small business. When I wanted money to expand or even to cover a cash shortfall the only thing the banks were interested in was how much real estate I owned and what my equity in it was. That was the only security that counted for a business loan.

They wanted to know how the business was going, but the business was worth nothing in terms of a security. The only security they valued was the equity in my private house or houses. Therefore as far as I was concerned my residential housing funded my business. The more my house was worth the more secure my business was.

I’m still not sure if John Key was really answering the question or just trying to get rid of a pesky business owner in his rush to get to his next appointment… The brief answer he gave suggested he agreed. “Yes! I get that, residential housing funds small business.”

I have always felt comforted by his reply as it suggests there is agreement in top circles that the two are linked. A healthy rising real estate market bodes well for small business as it makes small business more secure. I have heard figures that around 90% of jobs are in small business. I always wonder if the softly softly approach the government seems to take to residential investment isn’t tied in with this concept…

What are your thoughts?

Whangarei’s population growth is booming and an increasing housing shortage is threatening…

whangarei

If you don’t want to wade through the arguments below, what I am predicting is, as the Whangarei District is discovered by Aucklanders, there is going to increasing pressure on our prices from a shortage of properties. New housing is not keeping up with growing population demand and Auckland’s housing shortage is about to move up here.

The last census figures done in 2013 tell us that the Whangarei District has a population of 74,463 (Whangarei City 54,400). We are ranked 13th in size of all the districts in New Zealand and equate to 1.8% of the total New Zealand population. Basically we are a very small part of the country’s population.

However the census always undercounts the actual population because people are either overseas or don’t fill in a census. The tested figure for this undercount is 8.7%. So our actual real population in 2013 is around 83,000. The W.D.C. estimates that our population rises by around 1.0 % per annum. (830 more people per year). Therefore we should currently have an existing district population of around 84,500 people as of 2015

However a senior health official, who tracks the district population very closely, has provided information that shows the district population has grown by around 1000 persons in the last three months. (April to June this year.) That’s over a years’ worth of growth in three months. This indicates faster growth for the district than expected. From the sales evidence we would confirm this growth. A large part of this growth is retirement aged people.

The 2013 census also tells us that we have 28,149 occupied dwellings. The WDC have this figure at 30,204 occupied dwellings. There has been a lot of building activity since then so let’s take a guess (supported by WDC building consent figures) that the current level of occupied dwellings is around 31,000. 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). Inadvertently these Aucklanders may be driving their housing shortage north to our sunny shores . Its great news for builders. Of concern the same report says there was a large drop off in resource consents for subdivisions so it looks like sections are going to be harder to find as they are not many on the drawing board.

Talking to the rental team they are not experiencing a shortfall of houses. They are in the midst of the traditional winter slow down . This is cyclical and involves people moving out of drafty, uninsulated homes into warmer properties. It happens every year over winter. But the indicators are we heading into a shortfall and this should show in the rental market in about 4-6 months.

Harcourts Just Rentals… 

Are just about to secure a luxury $1,000,000 plus house coming up for rent in Mangatapere for $650 per week. Great if you work at the hospital and want that executive lifestyle. Call Mel on 021347355 for details!

 

The Cheapest Rates in the country! 

The new district council plan has an interesting graph on it’s page 24. It’s a breakdown of how our rates compare to similar councils across New Zealand. The table shows a sample of Districts and city councils with a population of over 30,000. We come out very well with the only District to have average rates of under $1,500. The next nearest is Christchurch and Napier at around $1,700. The national average is just over $2,000 and the worst two are our cousin in the Far North and the Western Bay of Plenty with an average of over $3,000 per annum. I think the council have been a bit selective in their figures, as when I tried to find the original research I came across an article from the Timaru Herald claiming they had the cheapest rates in the country.

But never the less our rates are a credit to past councils going back to Stan Semmenoff and the Progress team who first introduced the concept of Councils actually living within their means . A rare concept in these days of Super Cities. The effect this group had flows through to today’s low rates compared to other councils. I do hope the current councillors keep this in mind.