September 2017 Newsletter

confused seaA confused sea .


We have time is real estate when the winds of change are blowing in all directions. In sailing terms, this is a confused sea and we have one right now in Real Estate. For once I’m really not sure which way the market is going. If we look at the hard evidence then we are into a substantial slowdown. Open home attendance is way down to one or two people an open. Internet enquiry is down so much so that one or two enquiries a week is the norm when in the past it has been one or two a day.  Listings are still coming in at an average rate but sales are down. Prices are stable with one or two bargains starting to appear. All evidence that the market has peaked and the brakes are on.

However, there are number of factors that may be working together to create an artificial and very temporary halt to the market. This combination may be having a temporary effect against what is a longer-term trend.

From a logical and historic viewpoint, we should see quite a bit more growth before we hit a peak. These include the overriding fact that there are not enough houses in the system to meet the current supply. The population is growing at a record level. The creation of new buildings and sections is way behind target and getting worse rather than better. Rents are going up and interest rates are predicted to stay low for a long time yet. Aucklanders want to get out of Auckland.

When we look at the factors in play to slow the market down we have the usual seasonal ones. The days are shorter so there are less daylight hours to look. Most people are still in winter hibernation mode and would sooner sit by a nice warm fire than go out and look at properties.  Historically the market is slow over winter.

Then we have my friends at the Reserve Bank with their deposit ratio’s doing their bit to build a bigger and bigger homeless pool. The Asians appear to have left the pool and are not playing in our market anymore. The media have been scaring everyone with their “Market is About to Crash “headlines. But none of these fully explain the current lull. The only new factor in play is the three-yearly election. I just about refuse to believe it could be such a big factor as people still need houses. Under labour the market goes well as more people have the perception they have more money to spend and under National most of the same people think they have more money to spend. Unfortunately, no one will have more money to spend as the various promises get watered down or sink into inflation adjusted obscurity. What will happen is the Real Estate market will continue its ever present and increasing cycles as it has done for 130 years in New Zealand and nearly 1000 years in England.  There is no good reason why the Real Estate market should pay such close attention to the election but every three year it does. Despite it having no logical reason and therefore flying in the face of reason it does. I am still in denial, but it is the only new factor in the market.

The Auckland market has stopped its slide and I would suggest is poised for its next run upwards. At some stage, although not yet , the Reserve bank will drop its deposit ratio requirements , thus unleashing the next artificially created boom cycle as the pent up dam of first home buyers suddenly do have enough deposit to buy and a new wave of buying hits the marketplace.

In Summary. The evidence is there that the Whangarei market has stalled for now. I predict that this is just a short-term effect and the market has an upside yet. We will see the proof of this in Mid October WHEN Winston’s NZ first party WHO is the king maker will make a decision. Last time he was in this position it took three months before we even knew who the government was as he horse traded with both parties to get his policies on the agenda. It was a painful process!

cl-logoCorelogics latest figures


The August figures are in and Whangarei’s average price is $497,489. Just a fraction under $500,000 which should be reached in September and recorded in the October release. The increase from July is $3,277 which is $780 a week.  The rate of rise is slowing down from 17.2% year on year to 15.7%  year on year putting my earlier prediction of 12% by the end of the year about right.

for rent

 

Rental Update


There is no doubt now that we are heading for a rental crisis. There are not enough rental properties available to meet the current demand. This is clearly evident in Harcourts Just Rentals last monthly report (Courtesy of the lovely Renee Wilkinson)

Just Rentals is the largest Rental Agency in Whangarei and they currently have just 10 properties for rent. That may not seem so surprising but when you consider that they currently have zero vacancies the true story comes out. This translates as: – every one of their vast collection of houses is full. The only properties available are the ones that are becoming vacant over the next three weeks or are deliberately vacant for repairs and that is only 10. Two of which are available at over $500 per week.

These may not seem startling figures but as the ex Whangarei manager for Housing New Zealand I can tell you they are. We never had figures like this and we were just about giving the houses away. These figures are unheard of especially in winter when you usually have your highest vacancy rate. Tenants are choosing to stay put rather than join the hundreds currently on agency waiting lists. If Just rentals had another 100 properties they could fill them in weeks. Ring Renee and give her the challenge! (021892443)

Contrast this with a steady 900-1000 enquiries a month and you can see the picture unfolding

Another telling figure from HJR is the arrears amount which is running at just 1.4%. Looked at differently this means that 98.6 out of every 100 tenants is fully up to date with their rent. Again a starling figure in an industry that deals with deaths divorces and departures like no other.

The Rental crisis is here now and rents are going to go up. If Just rentals had another 100 properties they could fill them in weeks.  Ring Renee and give her the challenge! (021892443)

angry granma

Grandma would turn in her Grave

mothballs


The security police have decided that Grandmas favourite cologne “Mothballs “are dangerous and have been banned in NZ. You know that strong smelling Camphor based white ball that grandma or great grandma put in her closet to kill moths. Invariably it tainted all her clothes so that as she walked down the street a steady stream of dead and dying moths were left in her wake along with a few overcome pedestrians, and a lot of kids saying “what was that funny smell mum?”

Well it turns out they are dangerous. To quote WebMD.

Mothballs are a pesticide product that contain either naphthalene or paradichlorobenzene as active ingredients. Both chemicals are toxic fumigants (which means they volatilize into the air) and must be present in high concentrations to be effective. This is the problem. Concentrations high enough to be effective for pest control can be dangerous for anyone exposed to them.

Mothballs can seriously impair indoor air quality. In fact, the odour of mothballs can be detected at a few parts per billion in the air. (One part per billion is about several drops of water in an Olympic-size swimming pool.)

 

Only HealthWhat are the potential health impacts?


  • Symptoms of exposure to naphthalene include headache, nausea, dizziness, and difficulty breathing. Exposure to large amounts of naphthalene may damage or destroy some of your red blood cells. This condition is called haemolytic anaemia. Some symptoms of haemolytic anaemia are fatigue, lack of appetite, restlessness, and pale skin. Exposure to large amounts of naphthalene may also cause nausea, vomiting, diarrhoea, blood in the urine, and a yellow colour to the skin. Based on the results from animal studies, the Department of Health and Humans Services (DHHS) concluded that naphthalene is reasonably anticipated to be a human carcinogen.

I don’t think the security police have finished with this one yet. I am waiting for my first contract where someone wants the house tested for ‘Mothball Contamination”. It’s coming!

Private Rentals versus State Rentals.


The 2006 Statistics which were revised in 2011 (Statistics NZ) show the following. Of all the rented properties in New Zealand;

  • 81.8%    (299,607)    were privately owned
  • 3%          (11,004)     are owned by local authorities
  • 13.49%  (49,419) are owned by The Government Agency Housing New Zealand
  • 1.6%      (6,165) are owned by state run enterprises such as education   and hospital homes

We must keep in mind that HNZ say they have control of just over 62,000 homes so that probably means they also lease around 12,500 homes of private landlords.

The key point in these statistics is: –  New Zealand would be in a lot of trouble if it didn’t have the private landlords. Near enough to 4/5 renters rent off a private landlord. These private landlords should be getting medals for community service rather being used as a political football every election and part blamed for the housing crisis.  I see the argument that they are competing with the first home buyers and driving prices up but this carries no weight when you have the Reserve Bank putting 40% deposit requirements on first home buyers and driving them wholesale out of the market. To blame private landlords and then put up such financial barriers is complete nonsense.

We need to back the private landlords who are the real heroes in a housing crisis. I can see the argument for more state sector housing but this is a huge cost to the government of the day (more than all their election promises combined ) so has to be built up over time and history shows that large scale state houses tend to create large areas of “ State Licences Uninhabitable Mismanaged   Societies” or as they are more widely known SLUMS.

empowering people through property banner -1

 

 

 

 

 

Recipe – The Sure to Rise Housing Crisis Cake !  (warning can cause indigestion )

 

Ingredients

  • Find a large smooth pot then grease it with a thick coating of Resource Management Act to ensure that all ingredients stick to the sides  in a tacky gloop,  thus infusing the recipe with a strong flavour of bitter bureaucracy
  • From a strong stock of 72,000 state houses in 1991 , slowly reduce the number to 62,000 by slicing and dicing  off both ends  of your houses .
  • Liberally sprinkle more people into the mix. The amount can vary each year but  ideally about 70,000 new people per year
  • Add a dash of 40% deposit ratios into lending to reduce, or better still drive private landlords out of the dough.
  • Use part of the deposit ratios to make housing unaffordable to the young therefore trapping them in the gooey
  • In a separate pan reduce the amount of fat available to developers until they are reduced to shrivelled husks of their former selves, unable to build anything other than canary cages.
  • Pour all ingredients into a large Terra- Firma pot ,  then add  a generous spoonful  of  homemade  “ shortage of supply rental rate rises” . Knead  into a smooth paste and leave  in a globally warming environment until the batch has doubled in size.
  • Bake together until nicely golden brown or slightly burnt,  then  sprinkle   5,000 refuges on top to ensure all support  services are completely  and entirely overloaded.
  • Best served hot  on a bed of fragrant  crushed hopes.   ( Serves 4-5 million people )

 

 

‘When Will  They  Ever Learn !    When Will They  Eeeeever   learn! 

 This chorus from Pete Seeger’s famous folk song “Where have all the flowers gone “, best describes the current round of Reserve Bank meddling in the financial markets.  We have long said the safest way to regulate the real estate cycles is to not regulate it at all. Let it find its own level  just as we let bananas, boats and boots find their own level. The market decides what these items are worth just as it should decide what property is worth.

The latest attempt by the Reserve Bank to regulate the money supply by restricting its availability is going to have unintended and serious housing consequences.

We have already talked about how the Reserve Bank decision to increase deposit rates on purchases squeezed the investors, which in turn squeezed the supply of rentals, which in turn squeezed more tenants into  homelessness.  ( April Homeless Reserve bank Link)

The new credit restrictions are going to have as dramatic an effect on supply. You will already be hearing in the media how developers are finding it hard to get finance , and how some projects have already been  cancelled and more are due to be cancelled . Developers are high risk from a banks viewpoint so they are the first to get their money supply reduced or cut off when money supply is restricted.

Yet we are in a housing crisis!

Auckland is about 35,000 houses short of the current need and this figure is growing daily. Building consents in Auckland are struggling with around 7,500 per year. So what will happen when the developers are told  “No you can’t borrow the money “. The very housing projects we need to see go ahead to meet demand are going to be cancelled or postponed and the shortfall of housing is going to get worse.

Surely we should be encouraging the developers, who are the real heroes in a housing crisis, to build more. We should be making access to funding easier not harder, cheaper not more expensive. Any thought that government of local bodies can fill this housing shortfall is fanciful. The only people with the skills, experience, expertise and drive are the developers. Cut off their money supply and you have just cut off the housing supply for everyone.   .   It doesn’t seem that the shortage of houses is going to be addressed anytime soon.

We continue to argue that that house prices should be left alone to find their own level without political or external financial interference.   We only need to look at the Auckland market as an example.  We have supplied a series of graphs showing how house prices have a natural upward progression. If left alone, they head up at about an average of 8% a year.  If held back for a few years, either by global conditions or financial interference, they have a correction period where they catch up. This is commonly referred to as the Boom/Bust  cycle.  The graphs show Auckland has caught up with its natural level so should rise at around 8% for the next few years .

The Reserve Bank is being given credit for stopping the “ Auckland Boom”. We think the Reserve Bank had very little to do with it and the Auckland market had reached its peak for that time and simply run out of steam. If growth was the effect of lending restrictions then we would see that growth stifled across the country. The reality is the opposite.  Auckland has slowed to around 8%   but the provinces are rocketing along despite the lending restrictions and will continue to do so until they have caught up with their natural level.  In Whangarei that will be around $550,000.   (Boom and Bust explained )

 

Rental Demand.

On paper the average rental price paid in Whangarei has stabilised at just over $400 per week. It has actually dropped a bit from its high of $421 to a figure of $403.  However this apparent stabilisation of rents is an illusion created by a number of cheaper properties becoming available particularly units and two bedroom homes.

Just Rentals had their highest rental demand ever for the month of May with just under 1,300 people enquiring about property to rent from Trademe alone. Compare this with the 15-20 available properties at any one time and we have a ratio of over 65 people per property just from the Trademe enquires.

Two inevitable outcomes.

Firstly rents are going to go up and our earlier prediction of rents being around $460-$470 by the end of the year is still looking likely.

The second outcome is going to be homelessness.  To date Whangarei has all but been insulated from the sight of homelessness but with the growing number of renters and the slowing amount of rentals available, it is inevitable that this will rise and the local  social support networks will be stretched then overrun.

Evidence of rising rents is in Renee Wilkinson’s latest report (BDM for Harcourts Just Rentals) :- the  highest residential rent she could find on Trademe for Whangarei is $850 pw  and the lowest is $220.  There were 14 rentals advertised at over $500 per week.

 

House Prices

Corelogics’ May figures still have Whangarei house price rises rocketing along at 19.4 year on year growth. This is in line with our New Year prediction that saw growth rise for the first six months and then start to decline to around 12 % by the end of the year.  The average Whangarei property is now at $483,049 and growing at an average of $1250 per week.  This will see the $500,000 average house price prediction made in September 2015 being reached in September this year.

 

Some Observations From The Coal Face

  • The number of buyers has dropped off
  • But then again so have the number of quality listings. If there were more average priced listings there would be a lot more sales in the city.
  • Midway through June we saw a small jump in activity. There seemed to be more Auckland buyers  in the market and we had a lot more  properties going to  multiple offers than we had in previous weeks
  • Buyers appear to think they have a bit more time to buy but the multiple offers are proving them wrong.
  • The winter is traditionally our slowest time . Once daylight savings stops, the days get shorter and there is less time and inclination to look at property .
  • The serious long term investors are still in the market but the mum and pop investors are in short supply.
  • The Asian buyers ( from Asia) are all but gone .

 

Its Tough Being a Real Estate Agent .

We are such easy targets.

Recently one of my colleagues ,  who is incredibly  street smart but struggles a bit with  writing skills, received an email with these encouraging words :-

“Have you read this ? If I was the vendor I would be utterly ashamed. Oh . and how much are they paying you for this “.

This type of email is just so harsh and unfair. I know that in a perfect world every word would be spelt correctly and every comma would be in the right place but in this day and age the people who actually know what is spelt correctly and where all the commas and apostrophes   go,  are a rare and dying breed.  Over 30 years I have meet a lot of Agents who are Dyslexic or have writing difficulties, some, including the recipient of this email,  have been truly great at their profession, despite their challenges.  I am  very proud to say Real Estate is one of those rare occupations where these people are not only welcomed and accepted, but helped to learn how to overcome these difficulties in a positive supportive environment, and in the process become better educated and earn an income at the same time .   The saddest part of this email is the writer has published a paper on the negative effects of shame on learning.

As an aside, my spell check is telling me that I have spelt the word “Spelt” wrong. I have checked its meaning  and spell check has it wrong !!! . I am either writing about spelling in the past tense or i could be describing “an ancient form of wheat with long spikelets containing two light red flattened grains” . I’ll leave it up to you to decide.

 

Good Buying .

We tend not to advertise in this newsletter but will make the exception for this property.

The property is 8 Selwyn Ave. It’s a rough looking weatherboard home right on the corner of Rust Avenue and The Western Hills Bypass. Its on it own freehold section ( less a R.O.W ) which is great, but what makes it a great buy is the location. Same side of the road as Burger King, but on the other corner. It’s zoned residential but would suit a number of professional occupations. Probably one of the highest profile locations in Whangarei with ample parking and good access at the rear.  Needs a bit of a tidy up, but a great property to buy for the future. It  was purchased for roading purposes and is going up for Public Tender  on the 17th July.  Call or email for more information .  (8 Selwyn Ave)

 

The American Economy is still in deep Stook!

Far from showing signs of recovery the USA economy is showing strong signs of tanking, not helped by being under the unstable influence of its current and isolationist  leader. The long term effect for us in NZ,  is low interest  rates  (below 6%)  for some years to come as the world economy continues to struggle.

Here is a brief summary of the opinions of a number of the USA’s strategic thinkers and investment analysts who recently spoke at the SIC 2017 (Strategic Investment Conference) in May. This conference is attended by those who make the decisions of where to invest their own and others money. These snippets are taken directly from an email sent to subscribers of “Maudlin Economics” by Ed D’Agostino .

The common theme from these men, who are paid to get ahead of the market, is refocus your  investments in the USA and get it into the emerging countries such as China and India.  With this type of thinking coming from the people who advise the advisers the USA is due for some capital drain which will not help their already blundering economy.

Louis Gave, CIO of Gavekal: Diverging monetary policies and valuations would suggest emerging market equites will outperform their US counterparts over the coming decade… Being underweight US stocks is the slam-dunk trade, while consumer-related stocks in emerging markets are attractive. With certain European sectors near their 2012–2013 crisis lows, they look interesting.

Raoul Pal & Grant Williams, founders of Real Vision TV: Investors should be deploying capital based on the powerful demographic shifts now happening across the world… With the coming wave of retiring Baby Boomers, US equites will suffer. Look to capitalize on the huge developments taking place in India and Asian emerging markets.

Lacy Hunt, EVP of Hoisington Investment Management: Every US recession since 1915 (bar the one which followed WWII) has been preceded by the Fed tightening monetary policy. This time will be no different… Today, the bond market is telling investors these rate hikes will have adverse economic consequences. We have likely not seen the low in bond yields.

Marc Faber, publisher of Gloom, Boom & Doom Report: With favourable economic conditions and massive projects like China’s One Belt One Road happening, the setup for Asian emerging markets is extremely bullish. The opposite is true for the US and Europe… Investors should be selling US stocks and focusing on quality consumer and utility companies in emerging markets.

Mark Yusko, CEO & CIO of Morgan Creek Capital Management: The US is in the late stages of the business cycle, and when the downturn comes, stocks will drop by at least 30%. The outlook for US equites is bearish, but consumer and infrastructure stocks in emerging markets look attractive. There are amazing opportunities to buy quality companies trading at big discounts in China and India today.

Peter Boockvar, chief market analyst for the Lindsey Group: Just like quantitative easing caused asset prices to rise, if the Fed reduces the size of its balance sheet, asset prices will plunge… Given today’s lofty valuations, it’s a major sell signal for stocks if economic data continues to disappoint. Investors should be deploying capital in beaten-up sectors like agriculture and precious metals.

David Rosenberg, chief economist for Gluskin Sheff: Due to several deflationary headwinds facing the US economy, expect growth to remain lower for longer… The bull-market in bonds, which started in 1981 is not over. Investors should be stepping up the quality of their portfolios and investing around “late-cycle” themes.

John Mauldin, chairman of Mauldin Economics: Very soon we will have to deal with, one way or another, the largest twin bubbles in the history of the world: global debt and the even larger bubble of government promises. There will likely be some type of debt jubilee, accompanied by huge currency devaluation. As the disruption unfolds, it will be necessary to not only diversify among asset classes, but also trading strategies.

 

Property Collapse!! – Another media Beat-up

16/5/2107 The NZ Herald reported

“New Zealand’s housing market has a 40 per cent chance of going bust in the next two years, according to global investment bank Goldman Sachs.

In a research note published this week Goldman says the New Zealand’s housing market is the most over-valued amongst the G-10 group of developed economies, Bloomberg reports.

Goldman, Bloomberg said, defines bust as house prices falling five percent or more after adjustment for inflation.

Bloomberg reports that Goldman looked at housing markets in the G-10 countries -those with the 10 most-traded currencies in the world – and finds they are most elevated in small, open economies such as New Zealand, where house prices have rocketed in recent years.

Goldman compares house-price levels across economies using three standard metrics: the ratio of house prices to rent, the ratio of house prices to household income and house prices adjusted for inflation.”

The weakness in this sensational report is in the last sentence “ three standard metrics”. Whose standard metrics ? Not mine!

This report ignores the three prime factors that are driving house prices . Supply, demand and interest rates.  Why an “expert’ opinion should ignore these is staggering. Supply and demand are the two factors that define all pricing in all markets. The next most important factor in house prices is interest rates. Low interest rates drive prices up.

While the three most important measures of house pricing have been ignored  two of the measures they have used are seriously flawed . . Let’s look!

  1. Ratio House prices to Rents. There is always a lag behind house price rises and rents. The house prices go up first and then the rents tag along behind, but there is a delay. Initially tenants resist the higher rents and it only as necessity hits that they buckle and pay the higher rents. There are numerous rental glass ceiling that have to be broken in this process for the rents to rise. In Whangarei one was the $400 a week barrier. That ceiling is well and truly shattered now and rents are rising rapidly. Every news report you see on rents is saying how fast they are rising and how new record rentals are being paid. This catch-up process lags about 2-3 years behind price rises so to compare current rents to current house prices in a rising market is very poor research. It may work in stable markets but not rising ones.

 

  1. Ratio house prices to household income! This is another fantasy measure. It was introduced in the 1930’s to assist with state house pricing. It doesn’t have any validity in current house values. Firstly you couldn’t compare a 1930’s house with a house of today. Today’s houses are over twice the size and have more electrical points in the Kitchen than the 1930’s house had in its entirety. This measure has no relevance in today’s real estate pricing yet it still gets held up as a standard of affordability. It isn’t an accurate measure and hasn’t been for the last 30-40 years.

 

Coming back to the basics of “ Supply and Demand.”  There continues to be a SERIOUS   shortage of houses ( in the vicinity of 40,000)  with the supply of new houses not keeping up with the growing demand. We are falling further behind rather than catching up

There continues to be a growing demand for houses as our net population grows by just under 100,000 people per year. (72,000 from migration and 28,000 by natural growth).

Interest rates are expected to stay historically low for at least another 18 months.

There is a lot of emotional talk in the marketplace, fuelled by the media who latch onto, and headline, every bit of controversial data they can, but at the end of the day logic will prevail. Until our supply catches up with demand we will have upward pressure on house prices.

 

And How good is this American owned Bank at predicting their own market yet alone New Zealand’s

  • Almost everybody on Wall Street missed the financial crisis. But you would be hard-pressed to find a major analyst at a major Wall Street shop caught more unaware than Abby Joseph Cohen, the Goldman Sachs chief strategist who still had her rally cap on well into 2008 as the market imploded. Cohen set an uberbullish 1,675 price target for the S&P 500 for that fateful year, not foreseeing that the world was crumbling before her eyes. The stock market index would close at 903.25, a 37 percent drop and 46 percent below Cohen’s target. That same year, Goldman replaced Cohen with David Kostin and moved her over to a position as “senior investment strategist.” Yet on Wall Street there’s always room for a second act: Cohen maintains a prominent role at Goldman and even was selected to go first at a recent high-profile question-and-answer session with Federal Reserve Chair Janet Yellen.

 

  • Goldman Sachs was unable to see the risk in the USA subprime mortgage market, was heavily exposed ,  and required a 10 Billion bailout  (Federal Loan ) to survive the 2007 financial crisis.

 

  • Would have to pay $550 million in fines after the Securities and Exchange Commission said the firm misled investors on the other side of the Paulson trade. Goldman Sachs tried to keep their clients in the subprime market during the Subprime collapse against the advice of Paulson.  ( Read “The Greatest Trade Ever” Gregory Zuckerman)

 

April News

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 !!!)

Prediction !
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 .

 Rental Review 

 

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 :-

 

  1. Access to good schools .( The hottest demand is around good primary school zones )
  2. Well maintained houses. ( if you don’t have pride in your home you can’t expect to attract tenants who will)
  3. Good internet and phone communications
  4. Safe areas
  5. 3-4 Bedrooms
  6. Proximity to town ( 2 categories here…. Walking distance, equals central areas or driving distance equals no more than 20 minutes from CBD)
  7. 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 )
  8. Off main roads. Always the last properties to rent because of noise.
  9. Insulation. ( Compulsory from 2019 on for ceilings and reachable underfloor. Best to get in now before the rush and inevitable rise in installation costs )

 

Best areas:-

  • 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.”

For the full article

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.

 

Land for Sale at Wal Mart! Going Cheap !

 

Wall martToday we are seeing an unprecedented demonstration of why paper money has no real value. We are seeing banks across the world printing money. Money that isn’t based on anything other than  the effort it takes to push a computer button to produce it. It’s a deliberate policy to stimulate the economies of those countries that have financial difficulties . In this world of e-commerce the money is just a symbol on a computer screen.

It’s called Quantative Easing . As Wikipedia explains it :-

 “To carry out Quantative Easing  central banks create money by buying securities, such as government bonds, from banks, with electronic cash that did not exist before. The new money swells the size of bank reserves in the economy by the quantity of assets purchased—hence “quantitativeeasing. ..” 

And the Government “Bonds” they buy are :

“A government bond is a bond issued by a  government, generally with a promise to pay periodic interest payments and to repay the face value on the maturity date.” 

Compare how easily  money can be created while land is in limited supply, unless you are Dutch or Dubaiian. . If it is created, the cost to produce it is every bit as much, or more, than the land value itself.  With Quantative Easing every paper or digital dollar created drops the value of every other dollar currently in circulation and raises the value of hard to get commodities like land.

We have numerous examples of countries that have gone on a money printing rampage. (The best know being the German Mark after the First World War and the more recent example of Zimbabwe, with its having to print a  100 Trillion Dollar bank Note with an exchange rate of around $1.50 US before the dollar collapsed entirely. )  As in both these cases printing money creates inflation. Quantative easing is supposed to be different in that the money is  used to buy bonds with a promise to repay it in the future but the actual money used to pay for the borrowing is still created out of nothing.

Let’s have a look at some of the countries using Quantative Easing.

Japan .

Japan has a saving culture. The good people of Japan are famous for saving money in banks, even when the interest rate for that money is a fraction of a percentage, or none at all. They still save it. This has resulted in zero or negative inflation for years. Japan just could not get any inflation into its economy, so the current government under their Prime Minister Shinzo Abe has decided to fix that once and for all. They started printing electronic money, using the spin “Quantative Easing”.  Lots of it!. They have been printing $660 billion dollars (NZ) per year   since 2013 and are planning to continue to do that until they have created an inflation rate of 2%. The inflation rate after 5 years is currently at 0.5% so there is plenty more money needed over the coming years to achieve target. The government has said it is willing to create 1.4 Trillion dollars of “eased “money,  but at the current rate that is going to run out way before they reach their target

The effect for us is that the Japanese yen is worth less, against our NZ dollar, making our products in Japan more expensive for their consumers. The consumers buy less of our products . The reverse also applies in that as the Japanese Yen gets cheaper against our dollar so their products get cheaper in our country.  It has been argued that  Japan is  effectively shipped its inflation problems overseas.  (The current exchange rate is 1 NZ Dollar to 79 Japanese Yen)

The EU or European Economic Union.

Mario Draghi, The President of the European Central Bank and the man who has his finger firmly on the European financial pulse said in a recent speech that they were planning to cut money printing :-“The €80bn-a-month quantitative easing  scheme will be trimmed to €60bn a month from April.” 

The British Guardian  has the amount of Quantative Easing  already created for Europe at NZ  1.7 trillion . .

 USA.

They didn’t even to bother with Billions. They  went straight to Trillions. . About 13 Trillion dollars to be exact . Its a bit like the Quantative easing version of the Big Bang Theory . Out of nothing there was 13 trillion! Or as “Dire Straights’ once sang “Money for nothing and the chicks for free!   Just as in the past, the ‘Chicks for free” may  not be free at all, and will come home to roost.

These three countries (or blocks of countries in Europe’s case) are not the only ones to use Quantative easing. Many other countries are using it, some countries use it and disguise it and some wont report it at all. (Think communist countries ).

THE BIG LAND SALE

A way to put these huge figures into  perspective is to look at how much land could be purchased with the created money. If  land was freely available at “Wal Mart or Pak &Save ‘  in unlimited supply, and the land was available at the current market rate for selected areas,  what could be purchased ?

JAPAN

With its 1.4 trillion NZ dollars Japan could buy 4,721 sq. kilometers of its own prime residential land in the worlds largest city, Tokyo. (Currently selling for $26 million NZ, per hectare.)  That is one third of all the land in the largest and probably most expensive city in the world .

EUROPE

With its 1.7 trillion NZ dollars, Europe  could buy  163,897 sq Kilometers  of Dutch farmland. (Currently selling for  $92,400 NZ per hectare) . Luckily for the Dutch that is 4 times the size of the actual country of 41,543 sq. kilometers. With their ability to reclaim land from the sea they will no doubt double that in no time and be the size of Germany in 10 years or so and share a common border with Scotland, where they will no doubt compare notes on how to save money.

USA

With its 13 trillion of electronic money the USA can go on a real shopping spree. Farmland in Wyoming , the 8th largest state, sells for around $4932 NZ dollars per hectare.  The USA can  buy 23.8 million sq. kilometers of newly printed land. Add this new  land  to  existing land  and Wyoming will become 3 times the size of the entire USA.  Now that’s going to annoy the Texans .

While this is a strange way to look at Quantative Easing it puts the amount of money being created into real measurable terms.

Money is becoming more and more plentiful.  It can, and is being created out of nothing, while land is still in the same short supply. With this huge amount of electronic money floating around it has to become grounded!  Somewhere! Somehow! Someday! It doesn’t have real value, because it’s created ,admittedly for good reasons but created none the less. The only place that money will eventually settle is in land, shares or gold. Historically land has been a much better investment than Gold as it returns an income, as well as capital gain. Gold only has capital gain, or loss, as the market dictates.  Shares while real in terms of ownership are a nominal concept of shared returns in a company  and are only as good as the company. If the company can goes  bust you have nothing left but some worthless paper certificates.  So it will be land in the long term.

Is it any wonder we are seeing the wise money heading this way.  Japan is already seeing signs  with most of their 0.5% inflation being in rising land values. The Global Property Guide when discussing Quantative easing in Japan, or “Abenomics” as it’s commonly called,  reports:- “Despite its seemingly negligible impact on the economy ……..since the introduction of Abenomics , real estate prices have accelerated strongly in Japan…. Tokyo Metropolitan  Area 3.73%….. Osaka Metropolitan area 7.5%  ”

With the amounts of money that have, or are being created worldwide, we are going to see real pressure come into land values right around the world. And with the nature of international borders money from one country can be used to buy land in another country. New Zealand is an easy country for overseas people to buy into , just ask the Chinese. You don’ even need residency for most land under 5 Hectares .

Property has to be the safest bet for the years to come.  Maybe consider  emigrating  to Wyoming!  With their  recent “Wal Mart ” land purchases they have loads of the stuff!

Interest rates going to remain low for a long time

We are hearing in the Press how interest rates are going up and I like a lot of others decided not to take the risk and fix for three years at the current rates. But having not put my money where my mouth is, I remain skeptical that they are rising significantly and believe the evidence suggests they are going to stay low for a number of years yet.  The increases we are seeing now are very small and caused by the cost of borrowing money rather than any actual rate increases.

From the horse’s mouth the NZ Reserve Bank Governor Graham Wheeler said  that the bank expects the OCR ( Official cash rate to stay unchanged until late 2019. That’s a year later than was being said last year.

Mr Wheeler said “

“In effect, there is an equal probability that the next OCR adjustment could be up or down.  We consider the balance of risks for the global outlook to be downside.  For the domestic economy, there is some potential upside for output growth if migration and commodity prices turn out to be stronger than forecast, but the risks around inflation look balanced.”

The key point being “we consider the balance of risks for the next global outlook to be downside “  The Bank are anticipating the world economy getting worse rather than better and while that risk remains there is no room for any substantial rate increases.

In an earlier article we discussed how the American economy was in worse shape than the press and spin doctors are letting on. This was based on the slowdown in trucking movements across the states. These are the people who move the products. This is the best marker for what’s really happening in the states when you take out the spin from the money printing. If this is slowing then so is the real economy. The figure was supported by Maersk Shipping Line which was reporting a similar slowdown in container movements. ( CEO Soren Skou “Currently we are challenged by market Headwinds. In the form of low growth and excess capacity”).  What this evidence is saying is the world’s largest economy, when broken down into what’s being moved into, out of, and around the country, is slowing down.

In an interesting article by George Friedman in his newsletter called ‘This Week In Geopolitics “, he describes “Something Rotten in the State of Russia “when analysing data about wage arrears (Wage arrears are workers not being paid )

In December 2016 (the last month for which Russia’s Federal State Statistics Service has data), total wage arrears amounted to 2.7 billion roubles (roughly $46.4 million in USD).

 The regions with the largest wage arrears can be divided into two categories. The first is port regions. Primorsky region, whose capital Vladivostok is Russia’s largest port on the Pacific, has by far the worst incidence of wage arrears. It accounts for 21.2% of the country’s total. The area where it is the second most prevalent is Siberia (in places like Irkutsk and Novosibirsk).

 In part this will reflect the lower oil prices and maybe some of the sanctions over the Ukraine, but interestingly it seems the port regions are the hardest hit. If Russia is being hit with a drop off of container movements as reported by Maersk in the USA then we are seeing signs of world trade slowdown in Russia and the USA.

Add to this the very real financial issues still facing the Europe

Mario Draghi, The President of the European Central Bank and the man who has his finger firmly on the European financial pulse said in a recent speech

“The main interest rate remained at 0%……. although the €80bn-a-month quantitative easing (QE) scheme will be trimmed to €60bn a month from April.”

 I’ve skipped lots of the speech but look at the meat of what he is saying. The European Central bank is about to cut its money printing from 80 Billion Euros. (That’s equivalent to 122.4 billion NZ dollars) to 60 Billion Euros (NZ equivalent 91.8 Billion)  A MONTH!!!! . This is money the ECB creates out of thin air to try to rescue the European economy.

“Asked at the news conference whether interest rates were likely to rise before the end of the QE programme, Mr Draghi replied that policy makers wanted to see “a sustained adjustment in the rate of inflation, and we don’t see it yet… we see progress in the recovery [but] it’s a gradual process”.

In a statement ahead of the news conference, the ECB had reiterated:

“The governing council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.”

Together with Brexit,  there are no economic rainbows in the foreseeable Global financial  future. Remember our  Reserve Banks comment “ Global outlook to be downside “ . The 2019 projection for flat interest rates is  almost certain to be pushed out further. It would be export suicide for our reserve bank to push up the cash rate now while the rest of the world tip toes around  with its head just out of the financial water.

All this supports the earlier article arguing that we have not reached the end of the property price rise cycle.