peter fraser

9 Jul 2013, 11:21 AM

That's true, but we could have done the same in US housing and probably been more sure of the outcome. A few did that but most didn't.

Buying in a foreign market and risking currency fluctuations is too many moving parts for the average house investor unless of course you are a Kiwi and understand that Auckland market, know the suburbs and areas to buy in, and can hold NZ currency for long periods and perhaps not even bother to repatriate the sale proceeds.

Most housing investors that I have met use a "buy and accumulate" strategy and keep the risks and moving parts to a minimum. They are at the very cautious end of the investor spectrum, which is why they are buying now. They have a 10 year window minimum.

I understand that will mystify some permabears.

peter fraser

9 Jul 2013, 11:21 AM

Most housing investors that I have met use a "buy and accumulate" strategy and keep the risks and moving parts to a minimum. They are at the very cautious end of the investor spectrum, which is why they are buying now. They have a 10 year window minimum.

I understand that will mystify some permabears.

zaph

9 Jul 2013, 12:07 PM

peter fraser

9 Jul 2013, 11:21 AM

Most housing investors that I have met use a "buy and accumulate" strategy and keep the risks and moving parts to a minimum. They are at the very cautious end of the investor spectrum, which is why they are buying now. They have a 10 year window minimum.

I understand that will mystify some permabears.

I'd say the majority of property investors fit that description. Most of those buy something they would live in (and do little dd) and just wait for CG. They can, and will ride out income losses and probably short term paper capital losses as well. Once they're neutral they might consider another one.

Even hard core investors (I use SS as a proxy) mostly follow this approach.

Then there are those that 'manufacture' CG (and sometimes rent increases), by doing renos. I suspect most of these are due to the increase in the market price in the time it takes them to do the reno.

Lastly, and most rarely is the small time developer. Buy a house, replace it with two townhouses, or two blocks and possibly two houses on those two blocks.

peter fraser

9 Jul 2013, 12:48 PM

They use that formulae because it has worked well in the past, and probably will in the future.

I do see some market place changes though, and they might make the formulae less successful in the future:-

1. Going forward credit will be less accessable than it has been in the past, especially for multi property owners, but FTB's as well.

2. Buyers have access to a lot more data and they know how to read it, so capital gains might not be as strong in the future as they have been in the past.

3. There are calls for a property tax in lieu of stamp duty. If states adopt that they will quickly realise that incomes will be boosted by developing more residential blocks, and they might solve the housing/land shortage through their need for increased income rather than through political will to tackle problems. The Claw will be pleased. That will reduce capital gains and rents.

4. Our migrant intake will probably slow if we don't create jobs for them, and that might be difficult over the next decade unless Asia keeps expanding at a pace.

I think that we have too many amateurs in the property investment market. Not that I have a problem with people having a go, but it won't be as easy to find a bargain and give it a lick of paint and flog it to a wood duck as it has been in the past couple of decades.

Quote:

 

Westpac economists say expectation of future profits - not a supply shortage - is main reason for soaring Auckland house prices

Posted in Property July 9, 2013 - 09:32am, David Hargreaves

The rapidly heating Auckland housing market is being driven primarily by buyers' expectation of capital gains - not a housing shortage, according to Westpac economists.

Latest figures from the Real Estate Institute show that Auckland's annual house price inflation is running at just under 20%.

Last week Auckland's biggest real estate firm Barfoot & Thompson, which is said to account for around 40% of Auckland house sales, reported that its house listings were at historic lows. It also reported that the median price for its house sales in June rose by 3.5% to a new record high of NZ$590,000, although the REINZ figures for the same month, in contrast, showed a NZ$10,000 drop from a record high for Auckland in the previous month to NZ$555,000.

The Reserve Bank is becoming increasingly concerned about, particularly the Auckland market, and is talking up its prospects of introducing "speed limits" on high loan to value lending as a way ensuring continued financial stability and potentially of taking some heat out of the housing market.

The central bank's concerned that a sudden sharp fall in property values could cause financial stability problems. Interest.co.nz analysis of past household credit figures suggests households might be more vulnerable to the effects of a bursting housing bubble this time around than they were in the run-up to the last housing boom in the early 2000s.

The Government and Auckland Council have agreed in principle to an Auckland Housing Accord that would enable the fast-tracking of housing development, with a target of 39,000 new houses in three years to rectify a perceived shortage of around 30,000 homes in the region.

Westpac chief economist Dominick Stephens said in the bank's monthly analysis of the housing market, "Home Truths" that it has become "fashionable" to talk about a physical shortage of houses and slow building activity driving prices higher in Auckland.

"But physical housing shortages cannot explain the fact that rents are falling in Auckland," he said.

"House prices in Auckland are now rising at almost 20% per annum, while rents actually fell 1% in the year to May 2013, according to the Ministry of Business, Innovation and Employment.

"If physical supply was desperately falling short of demand, rents would be rising alongside house prices like they are in Canterbury. Physical supply shortages simply do not fully explain the Auckland housing market."

Stephens suggested that a better explanation for the characteristics of Auckland's housing market - these being low turnover, rapid sales, rising prices and falling rents - was widespread expectation of future capital gain.

"Owners are reluctant to sell because they expect better prices in the future, hence low turnover. Buyers are desperate to get in and enjoy capital gains, hence rapid sales and rising prices. Investors are keen to acquire properties despite low rental returns, hence falling rents. Tenants would rather own, again pointing in the direction of falling rents and rising prices."

BNZ chief economist Tony Alexander in his weekly newsletter last week noted that in Auckland there was a growing tendency for people moving up the scale to their second home to keep their first home as an investment property.

"Hence further aggravation of the listings shortage," he said.

"Reinforcing that, one [real estate] agent noted that of 93 people through an Open Home recently only three had houses which they wanted to sell! The listings shortage is getting worse," Alexander said.

Westpac's Stephens said that in trying to explain why there existed a widespread expectation of capital gain in Auckland, three "candidate explanations" sprang to mind:

People believe that Auckland's population and incomes will grow rapidly while insufficient houses will be permitted, creating a future sharp increase in rents that restores balance;
People believe that today's low interest rates will last forever, thus allowing future generations to pay more for houses despite low rental yields;
The expectation is irrational (a bubble).

"If physical shortages are not the main explanation for the behaviour of Auckland's housing market, then building more houses will not necessarily change the market," Stephens said.

"I seriously doubt that the supply measures recently enacted by the Government will really change much. Prices are being driven by buyer expectations of future capital gain - we know this because prices have become divorced from rents.

"The key to changing the trajectory of prices is to change buyer expectations."

Read more: http://www.interest.co.nz/property/65294/westpac-economists-say-expectation-future-profits-not-supply-shortage-main-reason-soa

Quote:

 

Housing market activity up in Auckland but prices down, latest data shows

Wednesday, 04 September 2013

Housing activity has increased in Auckland, New Zealand’s biggest housing market, but the average price of a home has barely changed over the past five months, the latest data shows.

The average sales price in August was $647,647, more than $6,700 lower than in July and more than $2,200 lower than in June, according to the date from Barfoot & Thompson.

‘For the past five months the average sales price for Auckland houses has remained constant. After a rapid increase in the first quarter of the year, prices have settled down, and there has been no upward pressure on prices for the past two months,’ said the firm’s managing director Peter Thompson.

This is confirmed by August’s median house price, which at $561,500 is down 4% on the median price for July, and down 4.8% on June’s median price.

‘August’s median price is right in line with that for November last year, suggesting prices have remained stable for nine months. What did change in August was that there was greater choice for buyers than there has been for some months,’ explained Thompson.

The data also shows that new listings were up 4.5% in August compared with July, the second highest in a month so far this year and 20.7% higher than the same time last year. Sales in August were also strong, up 5.9% on those for July and 18.1% higher than in August last year.

‘It added up to an extremely active market, but with prices restrained,. At month’s end we had 2,999 properties on our books. While this is relatively low, it was the highest number for three months,’ added Thompson.

A feature of August’s trading was a drop in the number of homes that sold for in excess of $1 million at 118 homes, well down from July’s 152 and the 144 in both May and June. The firm found that there was a far greater focus on the under $500,000 market, with 523, or 43.6% of all sales, being in this segment.

Read more: http://www.propertywire.com/news/australasia/auckland-real-estate-prices-201309048197.html