Blog: The Landlord says...

Over the past couple of months we have written about how there is a bit of a Mexican stand-off between vendors and purchasers in the housing market.

The commonly expressed view on this is that would-be buyers are expecting the market to fall even more than it has (because that is what they have read) and vendors are unwilling to quit at such prices. Many of these people have instead opted to rent their properties.

We have been researching the market for the lead article in next month’s issue of the NZ Property Investor magazine to get an up-to-date feel on where things are at.

My take on this is that the big gap between buyers and sellers is likely to suddenly close and maybe close quite quickly, leading to a spike in the number of sales.

The people who will be buying are property investors. The feedback we get is they are out there, attending auctions, checking out mortgagee sales and looking for buys.

Plus there is a huge amount of pre-approved finance just waiting to be drawn down.

They are coming to the conclusion that there is finance out there, vendors aren’t likely to move much lower and financing costs are starting to come down now the Reserve Bank has shaved 25 basis points off its official cash rate.

Adding to the excitement here is that the bank indicated it may cut the rate at each of its next six-weekly reviews this year – that mean cuts in September, October and December.

Then of course there is the prospect of spring just around the corner. Already I am hearing that banks may be more active with spring and summer home loan campaigns as they traditionally do – although they were almost absent last year.  (The main exception being ASB with its win a home campaign).

I know there is a lot of negative sentiment out there about the property market at the moment, but I was a little bit surprised to see just how bearish sentiment is.

The ASB Investor Confidence survey, out today, shows that investors no longer think residential rental property is the asset class which will provide them with the best return. Rather, rental property has fallen off its lofty peaks and is now level pegging with bank term deposits and savings accounts.

It seems there are a couple of factors at play here. One is that banks are being incredibly proactive at the moment, pushing their new savings accounts, which are particularly appealing under new tax rules to people on 39c tax rates.

The returns being offered for essentially low risk, liquid investments are up around the 9% range. Pretty attractive.

Another factor in the mix is that the media have been highly bearish on the property market and running plenty of stories about individuals or families who have taken a haircut on their property at sale time.

This is something the real estate industry picked up on a while back, claiming that the media was talking down the market. (Maybe these journalists are keen to get the market themselves!)

There is no doubt the market has changed from where it was a year ago, or even six months ago. The point which is worth making is that when markets are down, and this is any market, that is the time astute investors (and the ones who make lots of money) start buying.

Most people tend to operate the opposite way and buy at the top of a cycle and sell at the bottom. I can understand why this happens (and have even done that myself), but to me we are entering a time when people should be actively looking for opportunities to invest – whether it be property or shares. Those with the courage (and the money) will be thankful that they did so in a couple of years time.

The next week is likely to see lots of news on what’s happening with house prices around the country.

First up is likely to be the QV data, followed closely by numbers from the Real Estate Institute.

The things I will be looking for are more evidence that the market is flattening out, rather than falling further and whether the stand-off between vendors and purchasers is continuing.

As noted previously there has been a bit of a Mexican stand-off with purchasers believing the mainstream media stories that house prices are going to fall 30% and when they get that low it is time to buy, while vendors are refusing to take such a big haircut.

This has, as mentioned last week, led to an increase in the number of properties being put into the rental pool. I see this week there has been more comment from one of the bank economists about this emerging trend.

One of the other key things to look at with the house sale stats will be the number of listings.

If the recent Barfoot & Thompson numbers are anything to go by some sellers have moved to meet buyers.

ASB Bank has suggested that on a nationwide basis sales turnover could well stabilise in June.

It says that the decline in the median house price has been very mild to date, though in part that is because the sales distribution is getting skewed.

“Sales turnover is dropping most noticeably amongst the bottom price bracket, implying the median price overstates the ‘true’ price level.”

There are some early encouraging anecdotes on the housing supply front – which has built up very sharply over the past year. The demand/supply imbalance in the market may now be starting to cap the flow of listings onto the market.

While that is the overall picture it is a little different from an investor’s point of view. It looks like the positive cash flow properties may return to the market again. For a long time prices and interest rates were so high that it was very difficult to find a property which had a half decent yield on it.

The www.landlords.co.nz  website started a new section recently, Investment Gems, which is designed to showcase properties for sale which may be of interest to investors.

Some of the key requirements are that a property has to have one of these factors: a yield of at least 8%, instant equity (that is the purchase price has to be 10% less than the latest government valuation), have some vendor finance included, or have subdivision or do-up potential.

Judging by the number of listings there are, there is a good supply of investment properties available at present.

We Kiwis sitting here in New Zealand often look at Australia as the land of opportunity and a place where things seem better than our lot.

Property investing is one of those things where they look better than us. With the New Zealand residential housing market being in a bit of a funk at the moment there is much talk and attention on the Australian place being a better home for our investment dollars.

Well I am not 100% convinced that this is the case. Some research out from Crockers this week shows that on the face of it Australia looks attractive. However, when you factor in house price movements and yields, New Zealand still looks a good place to invest. It’s made even better as we don’t have stamp duty and some other taxes that dilute returns.

There are things we can learn, though, from across the ditch. Next week one of Australia’s high profile investors and teachers, Michael Yardney is in New Zealand doing a series of seminars. His events, run by the NZ Property Investors Federation are scheduled for a number of the main centres. (Details on landlords.co.nz).

Yardney is planning to explain the difference between the way successful property investors think and behave, compared to the way average investors think.

He has this view, which I agree with, that savvy investors make money in good times and make even more money in difficult times. (The less savvy lose money in good times and lose even more money in bad times.)

Right now, although we keep getting bombarded with negative information on house prices, is a time for successful investors to be active.

The message is simple, if you want to make money from property. Get out there and start looking for deals and arm yourself with good information.