By Bernard Hickey
Something is brewing and it smells familiar.
In recent weeks something has started brewing again out in the depths of the New Zealand economy and it smells disappointingly familiar.
The housing market has started to simmer again, albeit only in some places and for some types of houses. The signs are unmistakeable and many of the same causes and problems are repeating themselves.
It's like deja-vu all over again and it shows New Zealanders and our institutions just can't kick the habits of a lifetime. Not without some more surgery and therapy.
Firstly, Reserve Bank figures show mortgage approvals have picked up again in the last four weeks after months in the doledrums.
The value of approvals hit NZ$742.9 million in the week to November 26, their highest level since May 21. Then Realestate.co.nz reported that there was a rush of new listings in November.
New listings rose by a seasonally adjusted 7% to their highest level for any one month since June 2008 and the highest November since 2007.
First National reported that in some areas it wondered if "someone turned the light switch on' in mid-November as the number of listings and sales surged.
Finally, Auckland's largest real estate agency, Barfoot and Thompson, reported on Friday that sales volumes rose 19% in November from October and that average prices rose 5.7% to NZ$553,743. However, it also noted a much larger proportion of the sales were going through in the 'luxury' price brackets and suburbs around the CBD and on the eastern coasts.
There is a mixture of demand and supply in this warming of activity.
Buyers seem to have basked in the unseasonably warm and dry sun and decided after a fresh batch of open homes that now is the time to buy. Many people have put their lives on hold for years after the housing market came off the boil in early 2008.
Also, the tax cuts that took effect on October 1 are starting to hit pay packets and bank balances. The numbers are most substantial for those on higher incomes so it shouldn't be too surprising that it is those houses in the priciest brackets that are selling first and where the most heat is being generated.
Home loan affordability has improved substantially in the last three years and is now back at mid 2004 levels as incomes have kept rising and interest rates have fallen substantially, the Roost Home Loan Affordability report shows, The interest rate outlook for borrowers has improved too.
This week both ANZ and NZIER said they expected the Reserve Bank to hold the Official Cash Rate until the June quarter. BNZ's economists also said a later hike was also possible. This would encourage those moving to a floating rate mortgage that their rates will stay lower for longer.
But there's also a supply element to this. Westpac is now advertising for home loans with loan to value ratios of over 90%. Many of the banks are also offering incentives to mortgage brokers to sign up new business. Slight reductions in fixed rate mortgages in the last two weeks are also aimed at increasing demand for home loans.
The banks also seem a little freer with their lending policies and certainly have more funding available. BNZ was successful with a covered bond issue offshore and Westpac has announced plans for similar bond issues overseas.
Even Kiwibank detailed plans this week to borrow more offshore to put back into the New Zealand mortgage market. So what has changed? The Reserve Bank and the Government have both pointed to a change in the economy away from borrowing and spending on property to saving and investing in production.
Some signs of deleveraging have come through, but it's patchy and there is certainly a lack of big new investment in export businesses. See the interactive chart below to see how bank lending to businesses has slumped in the last two years.
There are few signs yet that households have completely changed their ways. All of the new bank lending in the last two years has been to households and farmers with property as the security.
Lending to businesses has actually slumped.
And now we see the foreign borrowing tap being turned back on again so people can pump more cash into housing values.
Have we really learnt or changed anything?
Not from the smell emanating from the richer suburbs in Auckland over the last three weeks.
120 Comments
yawn!
This topic is so stale - lets talk about our sharemarket which is becoming another endanger specimen..
Double Shot interview with Bernard Doyle ? His comments that the NZX is in danger of dying out , ought to be examined .
[ Gummy always fronts up for his quarterly talks to JB Were clients . ................... Totally awesome finger food they lay on ! ]
Yup its true... the lending team here at work (a bank) have been busy for the last 8 weeks or so, which is always an early sign things are changing. Looks like the combination of low interest rates and lower asking prices are drawing out the buyers.
Also, interestingly, I know a number of people who are actively looking or who have just bought (more) investment property in Auckland... I was surprised to find that they still view property as a great investment, and were all sighting reasons of medium term tax advantages, long term capital gain as the reasons for doing so.
So it seems for many, for whatever their reason, property is back on the table.
So, Matt. Why is it then that (a bank), well pretty much (all banks) have been dropping their mortgage rates if demand for them is picking up? I don't know many retailers that drop prices as demand rises! Or is it just that (your bank) is suckering the remaining undebted in at teaser rates, only to clobber them with substantailly higher ones, when they've been captured.
(PS: I have a nephew who works in the delinquent loan dept. of ( a bank), and he tells me they have 'never been busiers' following up on no-payments. How's (your bank) doing on that score?)
Can't say too much on a public blog you understand... the walls have ears around here, so I'd best stick to personal opinion....
... which is, that the unspoken and inconvenient truth about out monetary system is that it must grow (expansion of the monetary base) to survive. The wheels must turn NA, the wheels must turn...
Old habits are hard to change, maybe more bad news is required.... Something tells me we won't have wait long.
Im all about the Elliott Wave Theory, I reckon we are still in the fake bull stage and are about to see heavy capitulation.
Hers' a reason for Wave 5 for you MK!
"The Royal Bank of Scotland has advised clients to take out protection against the risk of a sovereign default by China"
I think it's true also. I've recently returned to Auckland from the UK and have my eye on inner city suburbs (Grey Lynn, Westmere, Mt Eden etc) and prices don't seem to be dropping to me. Plenty of desirable properties are attracting lots of interest at auction and prices seem pretty hot to me. I've just seen an absolute dump in Grey Lynn (3 bedrooms on 500 sq ms and such a dump that you wouldn't move into it as it was) go for $837,000.
Mental.
It's like sex or lack of it..pent up demand gets you in the end and then kickback time prevails!
didn't we have a blip like this in the housing mkt in november last year and then it fizzled out?
people will always buy houses and i would surmise that these stats. are showing interest at the lower end of the market and the median increases are just being driven by high end house purchases which always skews the figures upwards.
even the Barfoots man admits that.
what will will be...but for my money there are just too many fundamentals in play around the world, incl. a potential serious downgrade on NZ by S & P , for our housing market to defy the rest of world ( jeez i'm getting deja vu typing the same words a year later)
fools rush in where angels fear to tread...those daft enough to get loaded up with debt either personal or investment in the housing market are asking for trouble...only cash is king!!
( and bernard hickey, of course?!)
This simply shows how regulation/tax/State is not the answer the Kim Jongs' think it is - it is the problem.
Why would you invest in the NZX: the exchange is dying and the FMA may well kill it - http://www.solopassion.com/node/8169#comment-93827 - and we have an over-regulated, over taxed business environment, which is at the heart of it all, destroying innovation and entrepreneurship . Everybody wants Nanny State to protect them from the big bad finance company people, but Nanny can't - apparently the legislation was there the first time round, but wasn't used, so what makes anyone think that even more regulation will fix the losses from the next (keynesian) bust. Regulation just attacks the symptoms, not causes of investor losses, and nothing can protect an investor other than caveat emptor - they have to get themselves educated.
All this taxation and regulation (AFA's, FMA, all the stifling gobbly gook) is simply serving to grow the State - which is unproductively consuming just about half the economy now - and choking the free market and thus business. So the answer it not to tax and regulate property, it's to free up the environment for doing business.
The first government which courageously sets the target of halving the government spend over the next five years will be onto the true, structural (and philosophic) solution. Every party in Parliament at the moment, is committed to growing the size of the State.
This current government is great at talking up the smaller State, but they've not put a single policy in place to effect that.
I dont know where u come from because the land of Libertarians isnt the real world taht I seem to live in. There is virtually no regulation or state "interference" in PI'ing.....this is the problem.....ditto share market....small ppl are walking away from the likes of the NZX etc because they know they are little more than cannon fodder. Finance companies, no the legislation was only partly not there and partially it seems lack of funding....so a starved to death protection system is no protection....
Sure ppl could improve their education, but all taht would show them is how stupid they are to invest in sectors where its stacked against them.....NZX etc is only interested in providing services and information at a premium to those willing to pay handsomly for that right.....
Ok fair enough I guess in some respects, but dont then complian as that w*nker who heads the NZX does that ppl wont invest.....simple, level the playing field, make the dealings, timings and the info is equal and transparent....
yada....yada....25%....there is nothing true or courageous about your opinion(s), in fact you can look to the USA and watch that effect as it implodes.....its just a point of view...and a kooky fundie minority one at that.
regards
Phone up a stockbroker , and London-to-a-brick that they'll admit that local munny pours into the ASX , not the NZX . If Australia weren't next door , the 'brokers would be ........... ummmm.......... Broke !
We need a Double Shot Interview with Bernard Doyle , about his comments that the NZX is dying .
Good idea. Gareth is chasing him.
cheers
Bernard
....small ppl are walking away from the likes of the NZX etc because they know they are little more than cannon fodder
No, this is why: http://www.solopassion.com/node/8169#comment-93827
I have no idea which country you're referring to as 'PI'ing?
in fact you can look to the USA and watch that effect as it implodes...
Yes, just another bubble built on QE. Doesn't change the truth of what I've said.
Finance companies, no the legislation was only partly not there and partially it seems lack of funding
What on earth are you talking about?
Investment in our share market is a bit dicey at its current status - same as investing in our production sector, given our NZD is still skyhigh and most are export based. the only viable options are:
1. Bury it in the back yard (or mattress for those apartment dwellers)
2. put in the (Aussie) banks
3. buy an investment property (or several)
Guess you can't really blame them!
Bernard, you seem to be implying that there is something wrong with buying a house to live in - apparently we "can't kick the habits of a lifetime". I think in the top end of the market where there seems to be some activity we are not talking about investment property - so what do you have against people owning their own home?
Isn't BH live in some posh suburb of Auckland, Epsom? may be Mr H could sell, relocate to some cheaper suburbs of Auckland (aka S.Auckland) and invest the rest in some NZ owned business..
Yeah, he should have got out before his house went down by 30% - or is it 15%. Might have another revised estimate coming up ;)
Why would I get out of my house? I enjoy living in it. We didn't buy it for an investment...
Those who bought for capital gains alone may be struggling now if they bought in 07/08, otherwise still ahead.
cheers
Bernard
Now, now, nothing wrong with South Auckland Bro...
House to live in....no and yes......No its prefectly sane to want to live in your own home....however experience over the last 40 years has been the value of the house has increased around inflation, so in effect your money has been inflation proofed at worst case....of course there have been bigger profits in the last decade....If that was going to carry on being inflation proofed then it continues to be a safe and sensible option.
If however you expect a drop of 40~60% over the next decade then buying your own home today could turn into a nightmare....
Even worse buying homes to rent out where they suffer a loss or even fail to keep up with inflation as a business / savings scheme is plain loopy....
This is compounded if you understand the effects Peak oil will have on our and the World's economy.....simply a permanent world wide recession....lasting decades....
Im not aware BH has ever been against owning your own home in an overall sense....BH can answer for himself but what I have said is beaware you can lose money more easily than make it when considering today's events. Not owning your own home when there is the probabliity of huge drops over the next few years makes perfect financial sense....if you think a drop is coming, simply rent and buy later far cheaper....if you accept that scenario....if not well buy today grown ups make their own minds up!
regards
I love people owning their own home to live in. I own my own home.
The problem is when people gear up to buy rental property or something they can't afford in the long run.
It just pumped up the price.
cheers
Bernard
...yes it's all the PI's fault. They are why the suburbs where they don't buy have biggest capital gains and the suburbs where they do buy have the least capital gains. They are clearly to blame for all these price rises in the areas that they don't buy in. It's nothing to do with supply/demand.
The only thing brewing in property is the hype and BS from the vested interests...banks pushing cheaper credit on easier terms...agents singing loudly about the great sales numbers and the poodle media printing the BS knowing they live on the advertising.
Peasants must by now see they are the target for the banks and they have the power to smash down these insane prices...all they have to do is get out debt and avoid the bank bait.
Wolly, I don't think you need to talk to agents to see that houses in central auckland are selling like hotcakes - everytime I see a new for sale sign go up, there is a sold sticker on it within days. But there are real supply / demand issues in Auckland, some pretty big salaries on offer for the lucky few, and a lot of interest from Asia - so I think this 'recovery' will be limited to Auckland and maybe Wellington.
I don't doubt that Jimbo....but just because some high end stuff is selling in Auckland does not mean the market has returned to the speculative bubble mania...and that is what the RE mob and banks are trying to put across.....go read the latest fiscal update to get an eye full of the truth...the regions are heading down and there is a long way to fall.....English will be forced to revise his budget ideas very quickly....S&P will not be happy with the news just out....
We must live in different Aucklands, really different Aucklands. I live in Mount Wellington and nothing here is selling like hotcakes, it is hard work for agents. My parents live in the East Coast Bays and it's a similar story, what is selling their for the most part is creating unhappy vendors and happy buyers. The latest stats suggest that all the activity is at the top end of the market, perhaps you live in Herne Bay!
I agree mostly central auckland suburbs are in demand.. We've been looking for a home for a number of months now (note home not rental). Been to a number of auctions, galas etc..( whatever they called it). Anything within the perimeter of Ellerslie, Pt Chev got huge demands.. almost all were sold in days.
Nope I don't live anywhere flash, but I do drive through Mt Eden and Epsom everyday on my way to work.
There have been quite a few houses for sale in our area (Mt Roskill) which have all sold really quickly, not sure if the venders got what they wanted though...
I had noticed that prices in Mt Wellington don't look as high as they were in 07 when I was looking to buy and Sylvia Park had just opened.
Mt Eden and Epsom - only a lotto win away for me!
I can't see this getting out of hand.
1/ Bollard will jump on any major (non productive) credit (debt) growth.
2/ Any pick up we are seeing is localised, certainly the towns and provincial cities are still very slow.
3/ There is still very high levels of household debt - near all time highs in relation to income.
4/ The global economic situation is as unstable as it's ever been with sovereign defaults now a distinct possibility. A major slowdown in China (and therefore Aussie) could send our unemployment rate to 10% in short order.
We won't see a return to double digit annual realestate price rises for decades IMHO. A global hyperinflationary event (unlikely) excepted.
FYI from Rob via email
I read your piece re housing upswing and i've noticed your blogs. my question is this; didn't we see the same blip in november last year and then it trawled back down again i.e why do you think it's different this time? My reply: Yep. The same blip happened in March - November last year. It was fueled by bank lending funded from the RBNZ facilities.Now it's fueled by covered bond and Asian term deposits.
Same old stuff.
Yep. It won't last long.
Same structural problems of affordability.
Just more debt we can't repay.
Bernard
Thanks for that Bernard..
A working paper by the International Monetary Fund said several Asian economies including India, China and Hong Kong faced asset bubble threats and argued that more measures needed to be implemented to rein in the property market (FT).
Can't see li'l ole NZ property mkt breaking the world mould?
" (Melbourne's) Middle Park's median value fell 38.7 per cent from $1,910,000 to $1,170,000 in the June quarter, while South Yarra slumped 32.3 per cent from $1,920,000 to $1,300,000."
Sadly, my sister bought into Middle Park in March,having sold in Hampton the month before. She didn't listen to her big brother...!
http://theage.domain.com.au/real-estate-news/house-prices-slump-near-city-20101201-18gn1.html
FYI via email from Orlando:
I have followed your musings on investments and what we should be doing as a country. In most part your line is correct if we were in a homogeneous market and from the point of view of established theory and if we were a conventional large economy that had the luxury of plenty of suppliers competing honestly.
But we are not there really – we are a small country with all its major suppliers being monopolies or oligopolies who are blatantly colluding to ensure prices are increased at every opportunity – The banking sector, the oil sector, the energy sector, the food and dairy sector – does not leave much else of necessity.
But let us look at the finance sector in this country - $8.6billion and counting is what has been stolen, defrauded and incompetently managed and lost in the last four years. This is the biggest financial disaster to beset this country ever and yet not much is said or done to make the systems and companies involved more robust in their risk management or their responsibilities. So as the wild west in this industry carries on – why should I invest there? It’s clearly a very high risk strategy at any level of perceived risk. Until the government puts in place regulations that are seriously robust and a regulator with serious powers and teeth no one should be investing in that sector. Further the licensing structure of operators in this industry needs completely overhauling and should be in line with how the real estate industry was changed. I would also suggest that investment managers and financial companies should only be paid a fee based on performance same as the real estate industry – you make the investment profitable you take a cut of the profit – otherwise no income – and build in some claw back capabilities just for good measure and to ensure they don’t do short term profit long term wipeout.
The stock market – particularly in this global atmosphere – is just a no go high risk roulette game
Let’s look at the banking sector and interest rates – you say they are at their lowest in years and have allowed much better housing affordability – I disagree in part. Yes they are low but relative to their historic relationship with the OCR they are about 15% higher than they should be – for years the floating rate has tracked the OCR being about 2.5% higher – for the last two years it’s been 3.5% higher for no particular reason other than “because we can” attached. The reason given is that NZ has a huge foreign debt so people won’t lend cheaper money – partly true – but if our credit rating and long term outlook really is that good why can’t we get money at lower rates than Ireland?!! Or any of the other virtually bankrupt countries – hint oligopoly. When the banks in Australia recently just looked at tring the same thing and increasing that gap with the OCR there was a massive outcry and now the whole Australian banking system in under the microscope with a host of new regulatory steps in the offing.
So how should the New Zealand population invest what little money is left to them after the monopolies have taken most of it? Clearly in New Zealand there has been a huge distrust developed in putting ones money with anyone where we don’t have direct control – hence housing – bricks and mortar which we know is going to stay where it has been built – an investment that pays out even when its own value drops due to slowing economies – mostly safe if geared correctly and managed properly. The housing market is a huge jobs machine creating wealth and investment so any tinkering with its demand immediately reduces jobs and spending – as the government has recently discovered.
People choose to invest in housing because it’s what they want and prefer – they will not in most part be put off by unfair tax changes to encourage a change in direction – they will simply put their rents up, reduce their debt burden to reach a gearing point that continues to work for them and save more for the next deposit in the next property – this is what is going on. New Zealanders don’t invest in housing any less than many other countries – it’s just that the there is nothing left afterwards to invest in anything else.
It would be ideal to have in addition to the investment in housing to be able to have the large funds available for investing in producing tradable products – but we don’t have what many other countries have – a compulsory superannuation scheme. We also are not investing in the natural resources we have in order to have a better baseload economy such as mining.
Instead we have a buffoon telling us the best way to increase our wages in order to become in line with Australia’s wages is to actually get rid of the minimum wage and pay people less!! Don Brash has been very selective in comparing us with Singapore – a geographically very small and compact nation with relatively low infrastructure costs and low wages where the government has to pay for 40% of your house because it’s not affordable any other way. Not very credible really on his part.
No – in fact Australia’s minimum wage is NZ$19 and ours is NZ$12.75 – just maybe this is where that 30% difference may be found – and just maybe because its that much higher they can afford to have a serious superannuation contribution which low and behold gives us that huge investment fund. But it needs mining to be opened up, the emission trading scheme to be scrapped, a few valleys to be flooded so we can have clean hydro power for the whole country with some descent baseload fossil fuel stations and a minimum wage that increases by 5% per annum for the next few years with an incrementally increasing super scheme contribution - until we catch up with our neighbours.
I wont go into the exchange rate inaction on the part of this government – they are clearly caught in the headlights on this one.
Orlando
Orlando: You say this:
"People choose to invest in housing because it’s what they want and prefer – they will not in most part be put off by unfair tax changes to encourage a change in direction – they will simply put their rents up, reduce their debt burden to reach a gearing point that continues to work for them and save more for the next deposit in the next property – this is what is going on. New Zealanders don’t invest in housing any less than many other countries – it’s just that the there is nothing left afterwards to invest in anything else."
I doubt they'll be able to put up their rents. And how will they deleverage when they can't put their rents up?
cheers
Bernard
The minmum wage in Australia is $A 15 / hour , not $NZ 19 . ............ When you go to the shops or pay your bills there , they expect $A ............. Not so happy if you hand over $NZ .
But then , they can afford these socialist dopey policies , 'cos their sharemarket has grown enormously over the decades since 1987 , due to the lack of seriously dopey socialist policies . Our sharemarket , the NZX , is dying . Why ?
We need a double shot interview with Bernard Doyle to get to the crux of the problem .
Maybe it is their 'socialist dopey' compulsary super that makes their share market grow so much?
Orlando replies via email.
Thanks for your reply
There is a spread of rent increase capability – those who have had investments for several years are probably in a better position if they are unable to put up their rents as fast than those who are more recent purchasers. However speaking to many property investors and property management companies I am aware that rents are in fact going up – It needs a 10% increase overall to compensate for the unfair tax changes put in place by this government – I certainly have already put the rents up on my properties to compensate for this. You are assuming that there will be a host of investors who will be unable to sustain their investments when the effects of these changes kick in – these effects wont manifest themselves until April 2012, although some concerning LAQC’s will kick in in apri 2011 – everyone’s rents will have increased by at least 10% by then.
The amount of new properties being built has dramatically fallen – particularly the type that would be considered rental investments – this is putting an upward pressure on house price properties and countering the downward pressure caused by the reduction in volume of sales. The culprits as ever are the banks who are able to get away with charging 15% more than they should on the basic floating mortgage – allowing them to be very picky an bout their lending – not to mention their habit of cross collaterizing properties - which these same banks don’t do in Australia. Again there is a weak government in this issue.
The problem is that economists love modeling economies and love economic theories that espouse cause and effect – except you don’t take into account how real people will and wont react – as I said previously in a large homogeneous market with plenty of competition you can predict better – but in a small market like NZ the public is not diverse enough to react as the models would predict. Most people will not sell their houses at a loss - the ones that truly can’t pay the mortgage will end up as mortgagee sales – and even there the banks and their insurers are starting to realize that they are better trying to support their clients in the long run.
The reality is that people are generally against the ropes in many cases in this country and the government is really not doing anything to help – the top priority for them should be figuring out how to reduce the exchange rate and import jobs instead of the other way round. They also need to heavily regulate the banks and the finance industry so people have confidence in them. And finally they need to bite the bullet, have some courage and introduce a compulsory savings scheme that requires employers to also contribute as well, all combined with a vigorous approach to increasing minimum wages. I’m sure we will get industry complaining that this is not possible and that they will go offshore etc – let them – it is already being done in Australia and other countries quite successfully and leading to growth.
Orlando
The trouble is the stats show rents are rising no faster than incomes across the country.
Here's the Department of Building and Housing.
http://www.interest.co.nz/charts/real-estate/rents-median
Stats from Stats NZ in CPI indicators suggest similar.
Bernard
Orlando responds:
Typical economists interpretation – all macro and missing the devil in the detail – it peaked in 2008 and dropped when the credit crunch started and remained flat for most of 2008 and 2009 – 2010 on the other hand has already seen it rise to the previous peak levels and 2011 will see it rise further – it has to. Why is it that landlords should be the only ones who cannot put their prices up when all the underlying costs go up – it has to go up.
Landlords can put their prices up to whatever they like! It's whether their tenants can afford it that is the question. "You cannot borrow to pay rent; but you can borrow buy (~ and that's not as easy as it once was)" makes all the difference. Without wages rises, rent rises are capped. It's only a question of where a tenant can afford to live...and moves then to.
Why does "It have to go up"?
Landlords may demand higher rents, but tenants don't have to pay it.
they can just go down market or move in with friends and relatives.
That's what we've seen in South Auckland.
Here's more on that.
cheers
Bernard
Generally I agree....though Im not sure rents can go up easily....the other side is pay less for the property...so paying over-inflated prices makes no sense.
regards
I like your assessment - I too think the minimum wage would be a good place to start, as would compulsary super. I don't believe that companies, especially foreign owned ones, ever put up wages because they are making amazing profits - they only put them up when they have to. It doesn't matter how good our economy is, wages will only go up if the government forces it (minimum wage) or if there isn't enough supply of workers (e.g. skilled workers). But I doubt a national government will ever increase the minimum wage!!
From John via email
After reading your piece I submitted the following.
Go the housing market. Sure as hang beats anything else.
I bought 860,000 shares in a company a few years ago. without giving me one cent, I now own little over 500 shares and their value hasn't risen any for all that got done. Not one of my houses I have owned during my life time has ever sold for less than I paid for it.
On that basis, why would I invest in the share market?
Buying shares off Joe Public certainly doesn't do anything for the business does it? So, how do you invest in production Bernard?
Regards
John
John
Many thanks. Re you question about investing in production.
I'm investing in building a business -- this business (interest.co.nz). We now employ 8 people on good wages and make good profits, which are being reinvested in the business.
We're competing with 'imports' such as Google and Facebook for advertising dollars.
cheers
Bernard
Any plan to raise capital , and to list " interest.co.nz " on the NZX , Bernard ?
Ask Mark Weldon how much they charge companies annually to remain a listed member .......... Nice to have a monopoly ( provided that yer don't kill it ........... ask Bernard Doyle the how/why/wherefore on the demise of the NZX ............. a double shot interview ? )
GBH, there's more from Bernard Doyle here. He does an interesting annual survey on the NZX - http://www.interest.co.nz/news/nz-sharemarkets-size-relative-gdp-collap…
Thankyou Gareth . The search engine gets one to that article , as I found .
I've been to a number of GSJB Were client meetings with Bernard Doyle , in Christchurch . I reckon you'd enjoy meeting him . More so if you can get his firm to provide the snacks ( these guys nosh well ! ) .
I'll ask him to do a Double Shot interview. I have interviewed him several times in the past over the phone and have always found it worthwhile. He has certainly got some interesting things to say about NZX...
Excellent ! Thanks for that , Gareth . ....... I've always found Bernard Doyle worth a good hard listen , too .
Bernard,
I think building a business requires effort, creativity, and entrepreneurship. Most NZers would agree that buying rental properties is a much less risky proposition than starting and running new businesses. That is the reality and I don't expect it to change any time soon. The system is geared (ignore the pun) to making property the dominant economic activity for urban NZ.
However, you have raised the good issues: it's ultimately an issue of how much more NZ can continue to borrow offshore and to what extent is the country going to let future generations pick up the tab. This is largely an issue that is ignored by middle NZ and an issue I am loathe to discuss with most people as they have a limited understanding of its potential risk. As Nassim Taleb suggests, the financial world has become so complex that we have little to no chance to predict future crises. As we have seen, these crises impact upon our credit markets. Therefore, the future volatility in the NZ property market is easily as "unpredictable" as in equity markets. The idea that a property investor is "in control" is dubious at best. Also, the belief that the govt and taxpayer will always be on hand to bail us out is foolish. The situation in Ireland should be ample warning.
By the way, I think Taleb's ideas should be promoted in NZ business schools. I very much doubt they will as his ideas shoot down the establishment as it currently exists.
Thanks,
J.C.
Interesting thoughts. I agree on the Black Swan stuff.
cheers
Bernard
Nice to know you're making good profits , Mr Hickey
regards
IRD
Share market is now a con IMHO....its long past being a good thing for a business to IPO....IMHO....its great for some ppl wanting to make a fast and tidy profit to then walk away from.
Yes, I can understand why ppl invest in housing, generally its te least risky in terms of being ripped off by the con artists.....of which NZ seems to have a lot....
Watch out for the lifetime thing though, as someone said the next 20 years will be nothing like the last....
Invest in production, a very good Q....if some ppl could offer some sound methods I would be all ears.....the only one Ive seen is grow your own.
regards
Oh right.... so there's no "con artists" in the property industry so it's "less risky." I can't think of a market that's more susceptible to "rigging" than property, especially considering the role of govt, the banks, and the tax office.
Between 3 and 4% price increase in most central auckland suburbs according to heralds quarterly property analysis today.
Pretty healthy for a four month period.
At the risk of repetition, SK, and linking into Bernard's Top 10 (#1) today, you only need one of these in Auckland to erode many years of value increases!
" (2nd December 2010). Melbourne's residential property market turned in a patchy performance in the June quarter, with some affluent inner suburbs recording big falls in median values, while cheaper middle and outer areas maintained strong growth. Middle Park's ( say, Mount Eden, here?) median value fell 38.7 per cent from $1,910,000 to $1,170,000 in the June quarter, while South Yarra (Remuera?) slumped 32.3 per cent from $1,920,000 to $1,300,000."
http://theage.domain.com.au/real-estate-news/house-prices-slump-near-city-20101201-18gn1.html
SK
you are going to get all the old boys uptight and restless with statements like that :)
Bernard, Auckland is a different market from the rest of NZ as many have stated the past few months....it will continue to simmer along.
regards
Mr Hickey seemed a little resigned to the fact that Auckland is looking like taking off again, in the herald at the weekend (yesterday?)
"off the back of a 52% increase in the previous quarter."
Overall, prices of all dwellings - houses and apartments - in metropolitan Melbourne increased by 5.3 per cent in the June quarter, with the median house price rising from $470,000 to $495,000.
volatile. 2 suburbs. Victoria as a whole seems healthy.
(it's not like you to worry about being repetitive is it?)
52% was for Lorne ( Whangarei?) and the average of $470k odd that you quote was for the 'cheaper' suburbs. Your point was that the Auckland inner city is on the up by 4% odd is a little dwarfed by a fall of 38% in the 'good areas' of a similaly large city. Sell, whilst you still can, SK!
You really are insane.
Maybe. But if I ever decide that I am, I can rush out and buy property...tomorrow. If it turns out I am in fact lucid, then you may have a tougher time selling your property, tomorrow.. or the next day; or over very many days/months/years to come.
...but perversely entertaining.
play the ball, not the man...moron!
Hickey said to play ball with The Man , not with his Moron ................ Twat !
Bugr..didn't realise that he was Hickey's pet moron..
bring on The Man..where is he these days>>i liked The Man!
Bernard banned The Man because he was an impolite wanker . .......... ... .
.... . and The Man was over-the-top at times , too .
Bernard banned The Man....?and the Mans Back....? and that other one I'm not the Man but I agree with the Man....?? all banned...?.................Cripes I must have been fishing or something.......I thought they just went tits up.
No,,that was the property market that went tits up!
I had a rather obese , very mad , English landlady , many years ago ......... She used to lay naked on her bed , waiting vainly for a man ........... Ultimately , she had a crack up .
i thought that was the girl who flew upside down in an aeroplane who had crack up?
Rob o the Glen........woman who cook carrot and pea in same pot.................very unsanitary.
Have you no charity GBH...what kind of person were you to leave her that way...unattended...for Heavens sake man ...you know the routine...you shut your eyes and hum God save the Queen......but discharge your duty with honour and spare the drapery .
I am 22 and have about 20k saved up and looking into buying a rental in West Auckland. Why on earth would I keep my money in term deposits earning 5% or in a share market that has no good companies that are good value.
Why wouldn't I invest in real estate?
Give me a reason why not? (this isn't a rhetorical question)
Orlando sounds like a flipping genius!
There is no reason.
Go and do it.
I like Te Atatu Peninsula (west central I suppose)
There isn't a wrong or right reason to buy - Buy it if you can afford to or don't if you can't. Whatever suit your circumstances (and do have some reserve fund for rainy days).
There are two views in this website.. I would take them with some cautious... they are personal views and may be on the extreme end.
If you do end up with a rental - prepare to be cursed by some in this forum!
What are you going to buy for $100k, Elliot? Or maybe $200k, if you can get 90% financing. Because whatever it is at those prices...good luck with the tenants! At least you can see, now, why property halving in value would be the best thing for someone in your situation. Your hard saved money goes a lot further.
Elliot
Maybe house prices will fall?
They did in West Auckland in the last year.
Here's our West Auckland Home Loan Affordability report.
http://www.interest.co.nz/sites/default/files/Auckland%20West_first_home_buyer_Nov_2010.pdf
cheers
Bernard
Isn't Orlando where Disneyland is?
Mickey Mouse lives there, and Goofy too.
I own and hire a few small trucks costing me between 15-25k each returning me an average of $350-600/ week plus gst. Not to many hassles, much easier to get a driver out of a truck that has not payed than a tenant and all there junk out of a your rental ! And while all that's going on you are not earning anything.
Just an idea that works for me.
Ellitot, when you saved another 20k you learned a lot more about life and business.
Why wouldnt I invest in real estate....15 years ago, even 5 it made sense, as you say the share market just sucks its full of shelled out companies that have been raped by their CEOs and the institutional investors...
The problem is the risk of losing your hard earned $20k and more....
5% in a deposit account is a risk free return, so almost no matter what you cant lose your capital and are guaranteed 5%....however then cut out inflation and paying tax and you jsut about break even....yes not that great...
So look at PI....8% maybe is that for sure? no, bear in mind there is a signifcant chance of a recession and deflation.....risk of capital loss in the next year, a dead cert IMHO......
5% interest during deflation suddenly starts to look nice....oh and while the buying power of your capital is increasing that bit is not taxed....its tax free.....retirees etc should love deflation...
At 22 you are an adult, some financial risk is justified in normal circumstances...this however this is a one in 80 if not 130 years event....my money is in cash and im trying to clear debt as fast as....its your choice....
regards
Elliot, one reason not buying would be, as Wolly has warned, the roof will collapse on you!
Go for it Elliot!
I have 3 rentals in the WEST. The rental demand has been hot the past 4 months esp if your rental is in the right area/location close to motorway and schools
Three beddys are being advertised at 10-15% below CV out west currently and the occasional house yielding 8-9%. Lots of interest in baby boomers at open homes the last few weeks
Te Atatu Pen is a sough after area so rentals go at a premium. Massey, Henderson and Te Atatu South I can definitely recommend.
If I were you I would save up a bit more and wait til March-April 2011 for a good buy. Rates will still be ok then.
Do your numbers and good luck, regards
Incredible.
A positive constructive comment!
Auckland follows Sydney..allbeit 20 years behind..Sydney dosn't follow Auckland.The housing market in Aussie has hit the wall..The strange thing is if you believe the hype their economy is going great.Something smells...Mabey the posh suburbs are ticking over..because thats where the doe is for the Real Estate agents ,the same as here.Theirs a lot of cashed up people but per capita they are the minority.
When Chinas economy slows as it will..because America will stop imports,the Baltic dry is down big time..Aussie will wonder what has hit them.
Correction - when china's economy slows down - it will hit every one not just Australia. China to the world is like the Titanic and NZ is one of those passengers on it, when it sinks...
As it stands China is holding massive amount of US Bonds and 90% of rare metals like lithium. They are holding the trump card..
I didnt think they held 90% of lithium? think that was South America? bolivia? ditto "rare" earth minerals, china is prepared to dig them out no matter the human or ecological cost....there is quite a bit elsewhere, its jsut not as cheap so the mining stopped.
regards
Plenty of 2-3 bedroom places in the low 200 thousand bracket in Henderson, Te Atatu, New Lynn, etc.
Yields of 8% or better
Close to Westfield, bus stations, Pak n Save, schools, motorways, etc.
Elliott don't do it! The world economy is going through an extremely volatile period and you are most likely to lose with property at this point in time. I have made 25% on my investments this year, very little of which have to do with property. Don't trust a fund manager or anything like that DIY it, but by buying a rental you will be putting all your eggs AND the banks eggs in one basket. The first rule in investment is dviersification so that you limit risk, risk management is totally key in investing, buying a rental breaks the number 1 rule in investment, hence why you should not do it.
Mount Wellington and Otahuhu as well...
The bottom of the North Shore, Auckland housing market was Dec 2008 to Jan 2009. For those wanting to live on the shore If you didn't buy in that period you missed it (sorry)
The reason so many homes are on the market is that the perception of plaster homes has changed substantially and these homes have taken a hit.
Plus there are is also a huge volume of leaking homes.
Consequently the homes most want to buy in Auckland are in short supply and that is why the market will continue a gentle increase.
I'm not at all surprised banks would rather lend on houses than businesses as business has always been very high risk.
I just feel sorry for all the want ta be home owners who listen to the doomsayers.
Just be very very wise on your gearing and never over commit yourself.
Okay, Gavin. Tell me what is going to happen to 'that huge volume' of plaster or leaky houses, then? Are they going to be flattened, as they have no value? I doubt it! They will be sold at a lesser price to move them. That will drag the price of the 'good ones' down, as people do the sums "Do I pay full price + a % for a good one, or 80% - for a defective one?" At some stage the sums make a difference. to buyers. At that time the good ones drop in price ( as the entire property curve drops) as the buyers move more towards the defective ones ( "I could fix this this one up!) rather than pay 'full price'.
Takapuna, Mildord, and Devonport yes, but the North Shore is a large slab of land - have been tracking the East Coast Bays for 18 months now, some real bargains going up there, and getting better, even coastal property. If you've got a spare 900k then grab this one:
http://www.trademe.co.nz/Trade-me-property/Residential-property/Houses-…
Note how long it's been sitting on the market.
"Put all your eggs in one basket - and watch it like a hawk"
(another perspective)
I watch all of mine like a hawk, the problem with housing is, if I see mine starting to trend downwards, I can sell tomorrow, whereas if you see housing trending downwards, you have to wait a month for yours to sell.
Mm. I'm not saying it's my own perspective.
However I would rather be a master of one area than a jack of all trades - so to speak.
From someone who has had a long experience as an Auckland based property speculator and sometimes property developer. While some may not agree, investing in property is a proxy for investing in inflation. For the period 1950 through 1990 property prices never went down while inflation inexorably rose and property prices went with it. Having never seen prices fall in my lifetime, I went for it, diving in at the deep end, buying investment properties, negatively gearing, using interest only Solicitors Loans at 18%. Yes interest rates were 18% in the early 1980's. Then I got caught up in the "recession" of the 1990's but managed to avoid getting smashed. In the new millenium the property bubble began in the US, then overflowed into the global market as interest rates came down to offset the dot-com-crash, and again with the GFC making gearing attractive for the many. Now, to echo GBH's warning above, there is great uncertainty in the global economy. The local financial economy will either stagnate, inflate, or deflate. The risk is deflation. At the moment the US property market has deflated and the US Federal Reserve is frantically inflating in trying to avoid a widepread deflation trap, while Ireland, UK and Greece are deflating. The question you have to ask yourself is can you afford to get wiped out, and start again. Apart from my own home I'm fully cashed up waiting for the crash.
What is going to cause the crash?
Tried to edit the word "crash" to "correction" which may or may not happen. Right at the moment property investment is not attractive to me. Too many risks associated with it.
Wouldnt you say the correction has already happened?
Have property prices in Auckland come down much? From what I can see a bit of the froth has been taken off the top. As to AU, prices have only just now reacted to the latest increase in mortgage rates. My gut feel is that prices within a 30 km radius of Auckland CBD will not come down at all, regardless. Unless of course there is a global depression, then all bets are off.
In places yes, try Otahuhu for example, or Avondale, though definitely with the 30 KM radius. I reckon you're right, but within a 10 KM radius.
I reckon the Chinese bubble pop thats coming will cause it, which will affect Aus, then Nz, I think thats about a year away though.
SK at 4:28pm - at the present situation - anything!
If you are that insulated from the nasty financial mess out there then go for it....
Otherwise, take your pick of world event possibilities....
Over in the EU, just one of Ireland, Portugal, Italy, Greece, Spain or Belgium defaulting....
Over in the USA, a state defaulting and there are quite a few....the Republicans refusing to vote to allow the deficit higher.......The housing lending / CDS fiasco lighting up and killing one or more of the major US banks.....
Over in asia, Japan.....default....China massive bubble collapse....
Peak oil realisation....
regards
-Oh please, less drama! It's only the usual case of people with cash picking up bargins during a decline. They are a very small number and this will prove to be VERY short lived and inconsistent. It's NOT a NEW bubble. It's more like "the groveling over the last few crumbs"
I know a couple who bought into the bubble, now decided that they want to get out, trying to sell their rental but because of lack of demand can't, wen't to auction, didnt sell, obviously they paid a lot more for it than they should.
Kiwis buy too much stuff and not enough do stuff – ha and now we are running out of paff to do and buy stuff . We are stuffed !
Nicholas: Yes that is a fair question and I beleive there are a few answers to it.
1. Certainly the prices have dropped for those that own plaster houses and in some cases unfairly as they are good homes. (its amazing what perception can do to prices)
2. Leaky homes are another issue. For those built from untreated timber, many will be written off, if not sorted out quickly. In a lot of cases that is unlikely to happen. I know a number of investors who are still buying them. They plan to rent them for three years or so and then possibly reclad. (fairly high risk in my opinion) However it is always only the land that increases in value, not what is built on it. (that only devalues)
3. Other investors are buying up properties that have never had a code of compliance issued and are stealing them. eg Govt Valuation of 1.1M and purchased for $605,000. Nothing wrong with the house and a great rental. (Makes more sence to me) Many quote these sales statistics to justify a fall in prices. Some beleive it without doing the research for the reason. (fools)
4. Whatever way you look at things, from my viewpoint there are some great buys out there with all signs from my perspective , pointing to a long term housing shortage.
5. For those that only have a recession to look forward to. Good luck! More money is always made in these times than in a time of boom. You make your money when you buy! but again watch your borrowing levels.
yep Auckland will simmer along, I would see flatness over the next 2 years in the big AKL. Obviously the increases reported in the media in the last couple of days are distorted by the larger number of higher end properties skewing the median. Rest of NZ could see further falls in the order of 5-7% in the next year. Wellington will be interesting - will expect further rationing of the public service which is likely to exert some downward pressure on prices
So overall still sticking to my call of about another 3-4% drop through 2011 over the country as a whole
what really interests me is what happens in 1-2 years time, when peak oil sees soaring petrol prices? Throw in what is likely to be a weaker NZ dollar and we could see petrol prices exceeding $2.50 a litre, possibly testing $2.75 . That will change property dynamics again - central properties will do well, further flung suburbs may drop substantially
I hope prices don't go up. More of the money in NZ economy to get gobbled up by higher debt repayments pushing up the cost of living and making us less competitive internationally.
Hi
here's some extracts from Tony Alexander, BNZ economists, survey from last night:
xperienced throughout 2010. • In Real Estate residential sales are still slow but steady. Prices here on the North Shore of Auckland are sluggish, many vendors still wanting more than the market will pay. Quite a few landlords trying to quit their rental investments. • Residential real estate Wellington. Weakest in 22 years. good houses holding value. Many vendors not willing to meet market. Sales time increasing rapidly. • Residential Real Estate - Hastings / Havelock North, Hawke's Bay. Critically low "volume of sales" over the past 3-4 months. November sales volumes were less than half of the pre-financial crisis levels, for time-of-year. There seems little real sign of recovery in the short term, so more of the same appears to be the prognosis for the next 12 to 18 months. Clearly there will be casualties as individual sales agents and some firms find they cannot continue ...and only the strong will survive. • Real Estate Auckland City. In the central suburbs of Pt Chevalier, Westmere, Grey Lynn, Sandringham the property market is strong, not enough homes available, multiple offers on properties which are selling fast and in many instances breaking street records. Have heard similar reports for most suburbs within 5 to 7kms of the city centre. • Residential real estate Christchurch still finding the market very sluggish, enquiry levels are up but the numbers able to put pen to paper remains very low as thousands still await EQC inspections then repairs . Still a long way to go before we return to normal levels of activity .There is no shortage of salespeople trying to talk the market up, but the statistics are the true reflection of where the market is at and they do not paint a very rosy picture. • Real estate central Otago, still a huge over supply of properties for sale. Only those that are really motivated to sell are getting results. Average asking prices are well above average selling prices • Christchurch Real Estate and Property Management: Buyer enquiry still very low listings steady. New properties under management increasing strongly. • Residential Real Estate is sluggish • In Real Estate as a salesperson the market is quiet, very very quiet, slow. Its not prices or lack of buyers I believe it is a lack of confidence in the economy both local and international. • Real estate Auckland - less Vendors, less buyers. • Residential Real estate in Gisborne remains difficult as buyers continue to use their power, being in no hurry to commit and holding out with lower than expected offers. Finance is difficult to obtain even to the extent that one bank [ the most popular bank in NZ according to its advertising!] told a borrower, we don’t lend in Gisborne!....we don’t have a branch there! Lower priced properties are the majority of sales while there are several high value properties that have had little inquiry. The opportunity for canny buying is there! • Real estate, Waikato have been the game for over 20 years never seen it so dead, I believe it may take 18 months or more to come right. Purchasers are sitting tight and vendors are for the most part are in denial, not accepting the reality of the market, time will sort them out. • In real estate sales, definitely worse this year sales 40 percent for me personally. Buyers hesitant due job stability, lack of business growth, banks state they want to lend but criteria too strict, almost impossible for self employed or 1st home buyers. • Residential Real Estate in Rodney, November has been our best month in recent times with good number of sales and a big increase in properties coming on the market. • Real estate, Auckland. It's still the hard yards. • Real estate a real standoff betweenxperienced throughout 2010. • In Real Estate residential sales are still slow but steady. Prices here on the North Shore of Auckland are sluggish, many vendors still wanting more than the market will pay. Quite a few landlords trying to quit their rental investments. • Residential real estate Wellington. Weakest in 22 years. good houses holding value. Many vendors not willing to meet market. Sales time increasing rapidly. • Residential Real Estate - Hastings / Havelock North, Hawke's Bay. Critically low "volume of sales" over the past 3-4 months. November sales volumes were less than half of the pre-financial crisis levels, for time-of-year. There seems little real sign of recovery in the short term, so more of the same appears to be the prognosis for the next 12 to 18 months. Clearly there will be casualties as individual sales agents and some firms find they cannot continue ...and only the strong will survive. • Real Estate Auckland City. In the central suburbs of Pt Chevalier, Westmere, Grey Lynn, Sandringham the property market is strong, not enough homes available, multiple offers on properties which are selling fast and in many instances breaking street records. Have heard similar reports for most suburbs within 5 to 7kms of the city centre. • Residential real estate Christchurch still finding the market very sluggish, enquiry levels are up but the numbers able to put pen to paper remains very low as thousands still await EQC inspections then repairs . Still a long way to go before we return to normal levels of activity .There is no shortage of salespeople trying to talk the market up, but the statistics are the true reflection of where the market is at and they do not paint a very rosy picture. • Real estate central Otago, still a huge over supply of properties for sale. Only those that are really motivated to sell are getting results. Average asking prices are well above average selling prices • Christchurch Real Estate and Property Management: Buyer enquiry still very low listings steady. New properties under management increasing strongly. • Residential Real Estate is sluggish • In Real Estate as a salesperson the market is quiet, very very quiet, slow. Its not prices or lack of buyers I believe it is a lack of confidence in the economy both local and international. • Real estate Auckland - less Vendors, less buyers. • Residential Real estate in Gisborne remains difficult as buyers continue to use their power, being in no hurry to commit and holding out with lower than expected offers. Finance is difficult to obtain even to the extent that one bank [ the most popular bank in NZ according to its advertising!] told a borrower, we don’t lend in Gisborne!....we don’t have a branch there! Lower priced properties are the majority of sales while there are several high value properties that have had little inquiry. The opportunity for canny buying is there! • Real estate, Waikato have been the game for over 20 years never seen it so dead, I believe it may take 18 months or more to come right. Purchasers are sitting tight and vendors are for the most part are in denial, not accepting the reality of the market, time will sort them out. • In real estate sales, definitely worse this year sales 40 percent for me personally. Buyers hesitant due job stability, lack of business growth, banks state they want to lend but criteria too strict, almost impossible for self employed or 1st home buyers. • Residential Real Estate in Rodney, November has been our best month in recent times with good number of sales and a big increase in properties coming on the market. • Real estate, Auckland. It's still the hard yards. • Real estate a real standoff between
this probably says more?
Real Estate – Valuation • Property Valuer - sales/workload are still very slow, have not experienced the usual pick-up before Christmas yet. Real Estate Agents are reporting an increase in listings, however, this is not coupled with the same increase in demand. Suspect that we will be in for another quiet 12 months. • Valuation Firm, Auckland: New home valuations almost non-existent, strong demand at upper residential price range, weak demand from investors, apartment market still tracking downward, more realistic expectations, developers getting on with it as favourable holding costs have started to waiver. • Property Valuer Auckland - Gone very quiet, might be a long summer holiday
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