Olly Newland believes many property investors are making the same mistakes they did during the last surge in property values prior to the 2008 downturn.
The only difference between the current Auckland property boom and previous ones, was that this one had lasted longer than the others, the veteran property investor and consultant told interest.co.nz in a Double Shot interview.
"But we all know that one day it will slow down," he warned.
"I'm not going to predict crashes or anything like that, but one day it will slow down and then there will be tears.
"People who have bought houses without getting independent advice and without checking what sort of structure it should go into for tax and so forth, they will be in tears one day because they've done it wrongly.
A worrying feature of the current Auckland market was that some people were getting involved in property investment schemes similar to those promoted by the infamous Blue Chip organisation founded by Mark Bryers, who is currently in the High Court seeking to be discharged from bankruptcy.
When Blue Chip collapsed, Newland attempted to assist some people who had invested through it, to try and sort out their financial mess.
"Most of them were in dire straits," he said.
"It was a very, very unpleasant situation.
"I had nightmares. I had to sit in front of people and tell them they were bankrupt and it's like offering people a death sentence in a way.
"It was the most gut wrenching moment I've had in my life, quite frankly."
Newland said people were once again getting involved in similar investment schemes.
"It has happened before. I saw it in the 70s and 80s in other forms and nothing has changed. People are still driven by greed and fear," he said.
'A day of reckoning'
While people who had bought investment properties five or 10 years ago should now be doing very nicely from their increasing capital values and rising rental income, some were over extending themselves and borrowing recklessly to expand their portfolios, he said.
"Unfortunately there's a large number of them who are dipping into the equity of their home sand borrowing against their homes, which can be done carefully, but [some] are borrowing recklessly and putting their homes at risk, by taking notice of all the outfits out there that promise how to get rich quick, and they are pouring money from their equity into new investments, which sometimes is not a good thing.
"They are making the mistake that prices will go up forever.
"One day there will be a day of reckoning, it will flatten out and then it won't be so much fun anymore."
Take a look at commercial property
Newland said some people were also making mistakes by buying properties out of town, in places where property values have actually fallen rather than risen.
More people should consider investing in commercial properties such as offices, shops and factories because returns from commercial property were generally higher than those in the residential market, he said.
"People don't understand them [commercial properties], they don't want to understand them, yet there's a huge market out there that's available."
Newland also said he didn't think Auckland was likely to see the estimated 10,000 to 13,000 new homes a year being built, that is estimated to be needed to relieve the region's housing shortage.
"The trouble is, builders can't make money form building cheap houses," he said.
"They go broke building cheap boxes. Builders make money building expensive houses.
""There's no money to talk about from building cheap affordable housing, this is the problem.
"I think it's going to be be almost impossible to supply enough properties," he said.
---------------------------------------------------------------------------------------------------------------------------------------
Our free Property email newsletter brings you all the stories about residential and commercial property and the forces that move these huge markets. Sign up here.
To subscribe to our Property newsletter, enter your email address here. It's free.
----------------------------------------------------------------------------------------------------------------------------------------
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.