David Whitburn

I haven’t blogged in a while but I have been thinking and networking a lot lately. I do a bit of public speaking particularly within the Auckland Property Investor association local groups and also around the country (next stop Northland Property Investors’ Association in Whangarei on Wednesday 28^th May). So I am meeting and talking to many hundreds of people, and most of them I speak too are very worried about the market.

I want to help explain a few things about where we are at in this market and give some insights as to how you can succeed in this down market.

Firstly success in this market comes in many different forms. For some it is buying a lot of heavily discounted property, for other it is keeping their portfolio intact, and for other investors it may simply be them able to sleep at night.

Where is our market at?

Property values are declining at the moment, the number of days to sell has gone up, building consents have gone down, Interest rates are high, NZ banks are tightening credit criteria and many major media sources are slamming property at the moment.

We also have a high foreign exchange rate, comparatively low levels of immigration, an offshore meltdown (sub prime market collapse in the USA), International banks tightening credit, and high oil prices.

Many factors are not pretty right at the moment. But does that mean we should panic sell what we have got and get out of the market now? For the vast majority of people, the answer is no.

Holding property long term is a fantastic way to get ahead. What were houses in your area worth 10 years ago, 20 years ago, 30 years ago. I have told you the story last year of my grandparents house in a subdivided farm in Kohimarama, in the central-eastern suburbs of Auckland. It was bought for $2,000 pounds in 1955 and is now worth over $2 million dollars. Looking back at Residential property Investor Magazine adverts and market Data from 1999, I see the median house price for Mt Eden and Epsom was $365,000. You all know this, but I constantly have to remind people – property always goes up in the long term.

Trading properties and timing the cycles is a property investing strategy but it should not be your main or only one. I believe that holding property long term is the way to wealth, and then use complimentary strategies like property development and trading and its derivatives (lease options, sandwich Lease Options, deriving finders’ fees etc) to compound your returns.

Now the market doesn’t always generate solid capital growth every year. We have been conditioned to expect that over the past few years though. Unfortunately too many of us have short memories. Property can go down temporarily. This graph below shows the annual percent change in New Zealand’s house prices from 1990 – 2007 in blue, with the total value of all New Zealand housing in red (yes all $600 billion worth).

The blue line shows we had negative growth in 1991, 1998, 2000, and we are highly likely to see negative property growth in 2008 too.

As you can see property values usually go up hence why the lines is usually over 0%. The periods of over 10% capital growth (upturns), eg in 1994-96, 2003-2007 show that.

What do I do then?

Get a thick skin. Become a Rhinoceros. Don’t let various media commentators get you down. I see so many glum faces out there. Cheer up! Don’t sell if you don’t have to.

It is the time to review rents, raise them if they are below market levels. If cashflow is tight change your Mortgage to an Interest only one rather than principal and Interest.

We are experiencing a property market downturn. But as sure as the sun will still rise tomorrow, there will be a property market upturn after this slump. With the baby boomers retiring and various economic factors changing (higher net migration into NZ, lower Interest rates, wage rises, rent rises etc) we will be in for a massive boom.

This is the time to steady the ship, maybe pick up absolute bargains, remove any clutter in your portfolio to fine tune it and get yourself in the absolute best position ready when the upturn starts so you can purchase a lot of property.

Realise that good times occur and bad times occur in any given market. Don’t blame the government, yourself, your neighbour, your tenant. It is not about blame, it is about what you can do to be the best you can be. Study the market, go along to your local property investor association meetings, read blogs, to investment events and educate yourself. Listen to all the speakers and make decisions based on facts and information.

Some of the very best investors I know are counter-cyclical, they invest in down markets, and quieten down in up markets, merely holding and watching their wealth accelerate rapidly. So my challenge to you is instead of being worried about the market, learn to understand the market and let it run its natural course. Take some short term pain, for medium and long term gain.

A powerful Warren Buffett quote comes to mind (thanks to www.about.com):

“Be fearful when others are greedy and greedy only when others are fearful.”

We have a down market at the moment, we can panic and sell everything and join in the negativity on property, or we can learn more about the market to understand it, and use this information to make sensible business decisions.

My question for you to ponder is:

What do you want to hold when this down market ends?

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