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'The nutter in the room' is the one buying Auckland houses, says mortgage broker, with many sales going to auction

'The nutter in the room' is the one buying Auckland houses, says mortgage broker, with many sales going to auction

By Gareth Vaughan

The red hot Auckland housing market may be peaking with sellers' expectations getting really high and potential buyers waking up to these, says a central city mortgage broker.

John Bolton, principal of Squirrel Mortgage Brokers, who also has interests in property investment and development, told interest.co.nz in a Double Shot interview the Auckland residential property market was currently "pretty crazy." He also noted the traditional New Zealand residential property investor who is "all about capital growth and not too focused on cashflow" is back in the market.

"There's certainly a lot of buying activity out there," Bolton said. "My sense though is it might be just starting to peak now."

"I think vendors have got really high expectations now in terms of the sort of prices that they can get. There have been some stellar sales around Auckland and I guess everyone's looking at those and is thinking that's the new price. Whereas buyers, I think, are starting to look at some of these prices and take a little bit of a step back."

"So the sense that I get is that buyers are starting to wake up to the fact that this is a bit out of control. And I suspect what you'll see over the next three or four months is maybe just a slight decrease in the amount of auctions that are converting and maybe a bit more property falling over at auction and coming back to price by negotiation," Bolton said.

"I think the story that there's a shortage of property in Auckland is pretty much believed by everyone now. That creates a pretty compelling story around why prices are going up. What has happened with vendors is with the shortage of listings they're basically getting promised the earth by (real estate) agents and I guess with what they've seen in the market over the last three to six months that has certainly been the reality. So the expectations for vendors are very high."

"Buyers have probably been through a process over the last year of constantly having to revise their expectations. Either they're buying a lesser property or they're having to borrow more. And I guess they've accepted that because they've believed the underlying story. But prices are getting to a level now where there's probably a growing sense that it's a bit too hot. I think part of the problem for buyers as well is just how difficult it is to buy."

"With everything going to auction pretty much the buyer's going to be the nutter in the room," added Bolton. "We've got plenty of clients that are going to four or five auctions and just not even getting close to being able to buy property."

The latest Real Estate Institute of New Zealand figures show the Auckland median house price reached a record high of NZ$562,000 in March, up 13.5% year-on-year. At 3,359, sales volumes in March this year were 18% higher than in March 2012, and 40% up on February 2013.

Investors back in a 'riskier market'

Meanwhile, Bolton said a lot more investors were now back in the residential property market, albeit a lot of first home buyers were also still active. He suggested investors were probably coming back after getting equity gains in their existing portfolios.

"It has given them (investors) enough leverage to drop back into the market and buy another one. (But) I'm surprised how low the yields are generally on the properties that investors are buying. We're seeing investors buying with 5% yields, which (are) cashflow negative," Bolton said.

"That traditional kiwi investor who is all about capital growth and not too focused on cashflow is back in the market."

"I'm probably getting a little bit more nervous about this market now, and with my property investor hat on, with the exposure that I've got, I'm actually probably starting to de-risk at the moment because my feel is that this is actually becoming a riskier market and that gets me a bit more nervous," said Bolton.

The Chinese effect

In terms of the much talked about Chinese impact on the Auckland market, Bolton said this was a significant factor both in terms of new and existing properties. He suggested non-residents are relied on, to a degree, on the development side.

"A lot of development basically needs to be sold off plan, the finance just isn't there for it. So it needs to be pre-sold. Offshore investors are much better at buying off plan than kiwis are. Kiwis generally, we're a sort of a 'want it now' society. The thought of waiting a year to a year and a half for a house is just out of our consciousness," said Bolton.

"We see a lot of offshore investors buying new development and that's not a bad thing because that's actually contributing to GDP, it's contributing to supply."

In terms of the broader market, the Chinese impact was "pretty hot."

"We particularly see it with a lot of young Asians that have been over here studying at some point, and have probably got residency and are not necessarily working, getting large deposits out of in particular China. So as far as any surveys are concerned it's actually New Zealand residents that are buying but the money's very much coming from overseas," Bolton said.

"I had a young woman this week who was looking to buy a property in Onehunga for around NZ$900,000. She was in a position to put a NZ$350k deposit down."

"She wasn't working so initial thought was 'well, sorry' that ain't going to work. She clearly couldn't borrow that much money. But the reality is she had another NZ$600,000 on term deposit which we could use as additional security. And so for the bank that became a no-brainer because essentially there was enough cash there to take out the entire mortgage. That's actually surprisingly common. We see that a lot with our younger Asian buyers. Very large deposits coming from overseas, support from family, and that's allowing them to buy up property in Auckland."

Also see last November's interview with Bolton; How and why previously unfashionable Auckland suburbs are becoming popular and causing house price rises to ripple out from the centre.

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40 Comments

Not sure how you arrive at conclusion that the interest received is tax free if it attracts the Approved Issuer Levy of 2% - isn't this a tax (of sorts)?
 

In previous dealings of non-resident deposits we deducted the 2% levy or NRWT at the appropriate rate from any interest received and passed that on to the IRD. It was done through a custodial account and all the client saw was interest received and AIL paid.

Kimy
Never assumed AIL was the same as NRWT.
Would be interesting to dig deeper into this but not worth wasting money on.
 

It wouldn't be tax free. The deposit would have at least a non-resident holding tax of 20%. 

Hi Kimy. According to ird a double tax treaty exists with China  http://taxpolicy.ird.govt.nz/tax-treaties , but perhaps there are specifics to this

Risco - Yes there is a tax treaty with China. Kimy is correct that these off-shore depositors don't pay any tax in NZ.
 
NZ has a large number of tax treaties in place which provides foreign investors with tax-free gains on income from NZ. Many off-shore investors operate from tax-haven countries and pay little to no tax on earnings from world-wide income.
 
Small countries like NZ become highly vulnerable as off-shore investors can strip the income out with only small contributions to the tax-base from any GST paid here.
 
NZ'er are generaly naive when it comes to taxation. They assume that everyone contributes on an even footing. The Government and many bureaucrats know that theNZ  tax system favours off-shore investors over locals but have failed to address the issue.
 
Tax Treaties may not be easy to change.

Many commentators said in 2004 that the market was peaking.
Wrooooong.
SK

Agreed - this article is rubbish - the boom will run at least 3 years. Last week 75% of Barfoots Western auctions sold, North Shore 74% sold and Central/South 88% sold, so no sign of a slow down last week in the auction rooms of the company that sells 40% of Aucklands real estate.

Two couples I know whose houses went to auction last week both failed to meet reserves.

Of course Gareth the debatable point becomes the reserves..... usually the conflict there, is the difference between what the vendor thinks it's worth ...to what the buyer thinks it's worth.....but it's a sure sign the buyers are thinking again, not panic buying on Market generated fear.
 I'm sure their freindly agent will be working on them to become a motivated vendor....ha ha.

What is the point you are trying to make Gareth. Auction results of 75%, 74%, and 88% is a hot market. But someone has to comprise that bit at the top, the bit between 88% and 100%, the bit that gets passed in. Perhaps they were too greedy. Perhaps the reserves were too high. Perhaps they didnt have the feng shui right. Perhaps they were disinterested sellers, happy to hang on if it didn't sell. Testing the market? Were the properties residential or investment? Were the couples intending on moving out of Auckland or moving on, or moving up or moving down? Or selling to go renting if they got their price? So many questions

Christov/Iconoclast - from what I've heard my feeling is in both cases the vendors were a bit greedy. I guess I'm just trying to say this may be a symptom that a bit too much greed is out there now, which perhaps backs up what John's saying. But time will tell.
Another thing I noticed on the weekend was a few houses in my neighbourhood newly on the market that I certainly wouldn't describe as the nicest ones in the 'hood. And secondly, there are a couple that have been on the block for a while now with 'offers from $XXX' signs in front of them.
 

Some advice given by a mates father many years ago.
You can sell anything at anytime, so long as you leave something in for the next guy.

Pure greed must have set in Gareth - should have listened to the market!

It won't peak till the average house value reaches over 1.5 mil

Thanks doublegz...apart from the obvious bank slave syndrome that would occur, you just gave me a great idea for an enterprise....
Now.....anybody out there need to Rent a Tent......hire a cupboard....buy a cardboard box..!
Can supply most things to suit your accomodation needs based on budget.

Are we so used to double speak we just don't notice it anymore.
"She was in a position to put a NZ$350k deposit down." "She wasn't working so initial thought was 'well, sorry' that ain't going to work. She clearly couldn't borrow that much money. But the reality is she had another NZ$600,000 on term deposit which we could use as additional security. "
That just does not make sense.  True there are a number of straightforward explanations.  But we need to hear them to really understand what is going on. If that is not explained.  Then it's not a useful part of an otherwise interesting article.
It's like those property spruiker magazines where "Bob went from broke to having $5mil worth of property in just 2 years"
What they don't ever actually say what happened is that in 2 years Bob managed to score $5mil of mortgages.
But otherwise it's good to hear part of what is going on in the market from somebody who is there.  Thank you Mr Vaughan and Mr Bolton.

He was being PC in not attributing any ethnicity or nationality .. however in the context of the article and the sequence and the headings used it can be deduced that she is an asian student

"a young woman this week was looking to buy a property in Onehunga for around NZ$900,000. She was in a position to put a NZ$350,000 deposit down. She wasn't working" but had a further $600,000 on term deposit
 
How does a young home-grown first home-buyer compete against that?
Read the Productivity Commission's report and see how it doesn't address that issue

This is quite common, personally know one young foreign student who dropped $1m of her parents cash down on a $1.4m Ponsonby VIlla just last week...

Knew an asain friend who was in NZ to study. His parents brought property through him some how. A lot of property.  Parents never came to NZ while that I was aware of.
Someone must know the logic behind this, or how this is possible.
Are they getting around the rules of buying nz property from outside NZ by sending their children here then loading them with cash? 

Kimy: you are obviously in the finance game .. what I would like to know is with the NZD going up and up and up against the USD and (by association the pegged) the RMB and the YEN how come the exchange rate differential isnt discouraging them? They seem to be pinning their ears back and going like it doesnt matter .. and it aint the interest rates because they are borrowing at 1% in HK, Beijing and Singapore if needs be

Goods points well made Kimy, especially #10, the currency war. Everyone with sons should be greatful we have a currency war. In days of yore, the powers that be would have been summoning our sons to a real war.  Our beautiful boys, off to get their brains blown out in some foreign field, to facilitate, in later years, the growing of oats by some peasant yobbo.
 
Give me a currency war anytime.

On your point #10 Kimy , not just your pet theory but one I have subscribed to for a very long time here....think I coined it ,................." buying the world one house at a time"
I agree with Vera  a fair summation , well put up.
 Cheers.

While I agree, Sadly Christov watching China and Japan square off over possible oil in the china sea with the US backing Japan Im not so sure we'll only get currency wars...
"I do not wish to be a pawn or canon fodder on the whims of MY Government"  is my thought of the week.
regards

I doubt that the China Japan oil aggro will amount to much more than a bit of macho posturing steven. It used to be that wars were fought because the ruling elite had so much to gain from them. Now just the ongoing threat of armed conflict is enough to keep them rolling in lolly.
Actual shooting wars between the major powers are consigned now to history because the ruling elite has so much to lose from them. 

Well you've only got to watch the Doco....War on Democracy to see just how wars are fought on many levels to achieve outcomes for the Global elite....
Hearts and Minds Steven.....the putrid tentacles holding the most fragrant of blooms to lure and captivate......

I think the guys at Stratfor said he was promised Kuwait if he attacked Iran. He attacked Iran (well his soldiers did, he himself did not of course) and the US reneged on the deal. Apparently he didn't understand that in the US it is perfectly normal to go back on a deal if you can get away it.

Agree with you Roger. Saddam was double-crossed by the CIA.

Roger W , I don't know if you have seen the doco I mentioned above, but  I watched it again last night, and this absolutely gobsmacking moment comes, when under pressure the somewhat pissed off  CIA executive,is asked what gives the U.S. the right to meddle and intervene in foreign politics....
 His response is a show stopper....a must to see...all the flowers gone..!no mincey the word pie..!
 ( not exact but close enough), we'll do whatever we want , to whoever we want, when we want ,  to protect U.S. interests including financial, found or unfound and the ...World...just better get used to it. If they don't like it.....tough.
The journo sat there like he'd been shot, and said , er  yeah OK....
Message recieved
The brutal honesty , bereft of flim flam diplomacy was very disturbing  ....even when you know it, you still don't want to hear it.
.

Cheers mist....I don't deny the practice....I had just never heard it put  so bluntly , so aggressively , that any doubt  anybody held in regard to "detent" was confirmed to the point of never going back .
 For me , as you know, I'm a line in the sander...and when push comes to shove, for all it's shortcomings, its dirty secrets, it's the only democracy I've got....so I won't be agonising over it at that time. 
Hopefully the little we can all get alng man will have been informed to the level of do's and dont's he may navigate through........until our new best friends require a revision in our nuclear policy.
 As I said mist.....even when you know it, you still don't want to hear it.
.

Well said Mist - Many people just don't get it. I have read many interesting articles on how the new-age - share and care push of the Socialists allows for the transfer to take place.
 
A distracted mind doesn't see the ruthless coming.

The doubleblind Notaneco.....Never judge a book......the one you don't see coming is usually among you.
Believe with reservation....reserve a place to believe in something...but only decision triggers action, for better or worse.

Sadly I see no real evidence to support that position Vera, but wishful thinking. I certainly hope you are right, but  sometimes the ruling elite considered they had a lot to gain and a lot to lose if they did not...think Argentina over the Falklands for a similar situation.  Yes it was 35 years ago....but look back in history and we see similar rinse and repeat.
The way I see things is we are into energy constrained world and in effect we are fighting over a shrinking energy pie while china etc has to continue to grow to keep its ppl happy. The only way some can grow with a shrinking pie is to take the more off those who cannot stop that.  So the first rounds are economic or financial sure....Im not very confident that its not going to become more and more overt as things get tougher.
Sit back we are all in the same test tube.
regards
 
 

Argentina was hardly a major power steven. That's an example of the type of conflict we will see in the future. One where the other party does not have the means to arrive at the door of the major power mob handed with evil intent.
 
That conflict did however, contribute the term Argie Bargie to the English lexicon.

"in theory everyone and everything belongs to the state"  you know what they say when theory meets practice?
Now while I can agree its possible there could be some state buying through individuals I think the chinese state would most likely buy through a front such as chinese companies acquiring farms and infrastructure over here rather than houses.  Now I do wonder on how many chinese officials illicitly smuggle USD out of china and nest egg bolt holes, that would be very typical chinese....
1 and 2 are gambling, the off shoot is we get cheap money easily, the risk is the money can be withdrawn very fast leaving us in the deep doo doo.
9 and 10 You really need to go live in china for 5 ~ 10 years and/or marry a chinese mainlander to start to understand how it really is. 
regards
 

Yes very plauseible Steven...and people can change their politic depending  on circumstance.....worth checking though, that quite a number of listed goliaths are  partly, mostly or wholey owned by The PRC.....the money is not an object.....the strategy has to be.
On The China U.S. potential there Stevo'....that's one conflict the entire world cannot afford. 

 
Government immigration policy influences $1m+ purchases: "The potential immigrant must invest at least $1,000,000 for at least two years to qualify - ie if keen on a particluar property investment or development a potential immigrant may boost the price they will pay to at least $1,000,000 just so they qualify for the scheme, when in fact the property may not be worth $1m"
So it is not surprising that Asians make up around 75% of the auction room crowds!
In addition "You have been in New Zealand as a resident for a total of 184 days or more in each of the two 12-month portions of the 24 months immediately preceding your permanent resident visa application. You do not have to provide any extra evidence, other than your passport"
 
Immigration investment requirement:
Residential property development
For the purpose of these categories, residential property development(s) is defined as property(ies) in which people reside and is subject to the following conditions:

  • the residential property must be in the form of new developments on either new or existing sites, and
  • the residential property(ies) cannot include renovation or extension to existing developments, and
  • the new developments must have been approved and gained any required consents by any relevant regulatory authorities (including local authorities), and
  • the purpose of the residential property investments must be to make a commercial return on the open market, and
  • neither the family, relatives, nor anyone associated with the principal investor, may reside in the development, and
  • the costs associated with obtaining any regulatory approval (including any resource or building consents) are not part of the principal applicant’s acceptable investments.

Seehttp://www.immigration.govt.nz/migrant/stream/invest/investment/investor/questionsanswersinvestor.htm

 

"And I suspect what you'll see over the next three or four months is maybe just a slight decrease in the amount of auctions that are converting and maybe a bit more property falling over at auction and coming back to price by negotiation,"
Has winter got anything to do with a leveling off of prices in the coming few months?
Market will catch its breath again before another big run in spring.....
Few more years left....at least until there is a change in government.....

John's right that central Auckland is coming off the boil, the QV stats etc support that.  Whether it will continue to simmer or platueu is yet to be seen.  The traditional ripple effect is now under way with North Shore, South and South East Auckland all starting to heat up.  Areas outside of Auckland are also starting to increase.  Looking at previous booms these suburbs will now probably increase for a further 2 - 3 years before leveling off.