All systems go for property investors

Monday 28 May 2012

Low interest rates, poor returns from other investments and improving housing market sentiment have created a psychological ‘go' trigger in the minds of property investors, according to BNZ economist Tony Alexander.

By Benn Bathgate

In his Weekly Overview Alexander says those factors have come together to convince investors' that property offers them the best investment option.

"Investors are now actively choosing property because the prospective returns stick out as very positive in a world of volatile and low returns in so many other assets," he said.

"The buying is happening because of the psychological ‘go' trigger afforded by the removal of expectations that prices will fall and the arrival of a growing expectation that prices will rise."

As well as improved sentiment towards the housing market, Alexander says the current low interest rates - and the expectation they will remain low - and risks attached to other investments, also make property a more attractive investment.

"Investors are now doing the simple maths. Do they stay in term deposits avoiding equities because of the high probability of another mini-crash there, and avoiding housing because they fear price falls?" he said.

"No, times have changed. The chances of a share market decline have soared. But house prices are now rising and people are comparing the cost of borrowing with the possible capital gain and lumping onto that the scope for good rents growth afforded by what they now accept to be a shortage of property in some parts of the country."

Harcourts chief executive Hayden Duncan agreed investors are back in the market and echoed Alexander's remarks about a lack of other investment options.

"Investors are looking at what other options they have, with the global situation with regard to Greece, and people are saying do I want to put my money into stocks?"

"Property is looking like a very, very attractive investment at the moment."

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