As John Key launches an all out attack on property investors, (who account for approximately 5% of total sales) the real estate market losers traction.
I find it extraordinary that such a small percentage of people could have such devastating effects.
“SALES PLUMMET TO THEIR LOWEST LEVEL IN ALMOST TWO DECADES” says the Real Estate Institute of New Zealand (REINZ). The number of sales has fallen to its lowest level since electronic records have been kept.
On the upside, based on the above reports it is now unlikely the OCR (official cash rate) will be raised next month as I previously anticipated.
But let’s step back for a moment and take a look at what we are presented with instead of banging away at our own tom-toms.
Below is a blog I put together in Oct 2009
Nothing short of a World War or Great Depression will change things
Nothing short of a World War, Great Depression, total or near destruction will see real estate cycles track as they have over the past years and heaven forbid either happening any time soon.Recently that statement was challenged by a University student, mind still full of textbook ideologies determined to prove the theories she had learnt correct.
As the system that monitors and controls cycles was tampered with five or six years ago it is going to take us some time to weather the storms and further turbulence is yet to hit. (Hence the current blip on the radar)
Five to six years ago a cycle had come to an end, it was time to take a break from soaring property prices to allow incomes to increase so further growth would be affordable.
It was time for the market to take a breather but it didn’t, and this is where it got all pear shaped and came unstuck. The system was tampered with and then became prone to failure. Lenders changed their lending criteria to keep loaning money, borrowers kept borrowing, and no one wanted the party to end.
Humans are like that, unpredictable, speculative and inquisitive we generally are out to better ourselves and in doing so often forget there is cost associated with growth.
My point to Fay, cycles have been about peaks and troughs, where what we should be looking at is sustainable growth, not the crash burn and rebuild cycles. And thankfully no, a world war or a great depression isn’t required if we take heed of what has recently rocked the world but if we don’t; they could very well become a reality.
Seriously, we really do need to start learning from the past as this isn’t the first time we have been rocked by a financial disaster. Although the last was initiated in a different industry (.com) the fundamentals where the same.
I think the old system that monitored and controlled real estate that inherently was based on a seven-year cycle worked fine and should be used as the model moving forward.
First we need to start with little if any growth (price increases) then in two or three years ease back into growth mode.
This is a better option than the alternative – the War the Depression, wipe everything out and start to rebuild from the ground up. Sounds a little dramatic, but some are doing just that and if we don’t make changes (now) I am afraid it will become a reality for many more.
In the past when I questioned people on how much they wanted to borrow 90 percent would reply, “That is why we got you here, to find out what the bank will lend us.”
As I would point out there is another side to the coin, how much do (you) think you can afford.
Yes it’s not only the Reserve Bank and the lenders that must take responsibility for righting the wrong but the borrowers must also take on some of the responsibility.
Back to my present opinions…
All of the above makes perfect sense but is does little to explain the spike prior to Christmas (2009)
That’s an easy question to answer, nervous and or over capitalized investors bailing out coupled with mortgagee sales and the normal November surge – no other reason really.
It’s simple really and this is what the government should be concentrating on rather than property investors (the 5% of the market). Focus on making housing more affordable at the bottom end, which will create a flow on effect.
LEASEHOLD LAND IS THE KEY and there is plenty of it. In doing so it will create employment and taxes far in excess of what they could hope to get out of the already over taxed.
Sure there are loop holes that need to be plugged and I am sure they will be but, I am afraid when one comes to the table with a closed mind it is very hard to see the big picture.
So then, is now a good time to invest in real estate, prices are low, interest rates are reasonable and values are in line with building costs?
Yes, if you can afford to, there will probably not ever be a better time.
Just remember, interest rates will increase so pay down as much debt as possible whilst rates are low. Capital gain will happen over time but at a much slower pace so don’t rely on that as a get out of jail card, DONT RELY ON TAX BENEFITS and all should turn out fine.
Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.
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