Blog: The Landlord says...

The Reserve Bank’s 150 basis point cut to the official cash rate is indeed good news for the property market. Home loan rates are tumbling and all lenders, according to this table, pretty much have rates starting with a five. (Those who don’t are sure to have them soon).

While lenders have been criticised for not passing on the full 150 basis point cut straight away I suspect as competition mounts they will be forced to push rates even lower.

It is clear that the margins banks are making on their home loan business are the fattest they have been for some time, but you have to remember their volumes of business are way down on previous years.

The cuts we are seeing in the cost of money are going to make many people rethink their investment options. While bank term deposits and the like have been the vehicle of preference, it seems they will lose some of their sheen now. These rates are likely to tumble, just like home loans, and don’t be surprised to see rates with a three in front of them. These won’t give investors real after tax return.

If they want that they will have to look elsewhere. Two options which will be on the agenda are property and shares.

Shares may be hard for many to accept due to their volatility and also because there has been so much bad press around the market.

Property though, particularly residential, will start to look attractive again with cheap money and house prices down. Don’t be surprised to see the Kiwi love affair with bricks and mortar rekindled. The same affair Reserve Bank governor Alan Bollard tried to bust up last year by increasing and keeping the OCR high.

Here’s a few predictions to start the year with. Firstly, smart investors are buying and will make some great buys.

In the next issue of the NZ Property Investor we speak to many people who have bought properties in the past couple of months. The stories they tell are quite inspiring as they show that the numbers being achieved in this market are good. Property is starting to stack up as an investment option after years of being too expensive.

One of the reasons is that interest rates are low and continuing to fall.

My second prediction is that we will see home loan rates with a five in front of them within three weeks at the outside. It seems to be a race to see who gets to 5.99% first. It could even happen sooner as we have wholesale rates falling and banks working on what are fat margins (compared to the mortgage war era).

My third prediction is that while money is cheap, it won’t stay that way for very long. Later in the year we will see interest rates start to increase again (just like we have seen petrol prices rise in the past week).

A fourth prediction is that property will look very attractive. At the moment, low interest rates mean that real returns from bank term deposits are close to zero. Investors have to look at growth assets such as shares and property. Shares look ugly as the world markets go through turmoil, while property looks much better.

My fifth prediction comes from the effect of the first three. House prices won’t fall significantly in the next few months, with the exception of high-end property especially coastal retreats.

Buyers are out there looking and if there is enough of them, they will provide sufficient demand to stabilise prices. This won’t just be for properties which stack up as investments, but also for first home buyers and for families looking to take the opportunity to upgrade their home.

These people may even end up buying the property which has been put into the rental market by accidental landlords, the ones who couldn’t sell at a decent price in the second half of last year.

This is far more optimistic that what you will read in other places, but I reckon there are many positive things happening for property investors right now.

There’s a lot of talk about the state of the residential property market at the moment, much of it from commentators rather than people on the ground out there doing it.

Have you bought an investment property since mid-November?

We’re looking to talk to investors who have bought recently or are intending to buy for an article in the NZ Property Investor magazine. If this is you, please can you email your contact details to editor@propertyinvestor.co.nz. We’d like to know more about what, when, where and why investors are buying.