By Devil S Advocate
There's never been a better time to borrow up to the hilt and buy property.
It's almost too good to be true, but it's true. Let me show you why.
Interest rates are at record lows and they're about to go lower. This European turmoil is brilliant because it will force central banks to cut interest rates. That means we can all afford to borrow more and pay higher prices.
Banks are desperate to lend again, even offering 95% loans and discounts on legal fees and building reports.
National has just won a second term, partly because the electorate vetoed Labour's idea for a capital gains tax.
Prime Minister John Key will never do anything to hurt property owners. He has said as much. All through the last three years he argued against anything that would have a drastic affect on land or property prices. He is particularly reluctant to force the banks into fire sales of houses and farms in case it drives prices lower.
He's also doing very little to improve the supply of land and property onto the market. This has the effect of pushing up the prices of existing houses, which creates tax free capital gains. National and the councils could push to open up new land supplies, but show no intentions of doing so. They know what's good for them and the property developers who support the National Party. There's nothing better than a land bank you can sit on and drip feed out properties while making tax free capital gains along the way.
Did I mention the capital gains are tax free? They are and will remain that way forever because politicians know what's good for them.
Any government serious about improving housing supply would simply use government land and cheap government money to build a bunch of houses, but that's never going to happen under National. Sweet.
Reserve Bank Governor Alan Bollard also knows what is good for the economy. His first instinct is to keep interest rates low to keep the economy growing. Underlying inflation has actually edged up about a percent to near the top of his target range of 1-3% on his watch.
He cut interest rates in March to 'emergency' low levels after the Christchurch earthquake and despite warning he would put it back up, he hasn't, and now the markets are predicting a cut over the next year. Even if the banks threaten to put up interest rates because of the higher cost of funding their foreign borrowing, Alan will save us by cutting the Official Cash Rate.
Rental property owners win in many different ways. The value of their properties rise because of a shortage of property, and the rents are rising, particularly in Auckland. Department of Building and Housing figures show the rent for a three bedroom house has risen from NZ$400 a week to NZ$490 a week over the last four years. The average two year fixed mortgage rate, meanwhile, has dropped from 9.4% for 5.9%.
Also, in Auckland at least, prices are booming again, particularly for anything that is not leaky and can house a family. Barfoot and Thompson figures for the average sale price of properties in the Eastern Suburbs area of Auckland show they have risen 16% to NZ$817,993 in the year to October.
Check out this combo. Rents up 22.5% in the last four years. House prices up 16% in the last year. Interest rates at record lows. Housing supply constrained.
And there's no sign we're going to lose our jobs. The Chinese will keep bailing everyone out. And the government will never let the banks fail so even if we're behind on our loans we'll never be kicked out.
The Europeans will bail their banks out with printed money. If we're really lucky it will all create inflation, which will also push up property prices. And if it all goes really pear shaped overseas all the investment bankers from New York and London and the property developers in China will be rushing to New Zealand to spend their US dollars on good, safe, warm New Zealand land.
Mate. You can't lose with property.
Fill your boots now while the bank manager is offering.
Devil S Advocate