Archive for the ‘Market Commentary’ Category

Me in yesterday's Herald Homes, Ask an Expert section

I was asked by the NZ Herald to assist as a property investment expert in the Herald Homes supplement this week.  The question was:

With interest rates so low at the moment, we are considering buying a couple of units in Auckland as an investment. Is now a good time to enter the market?  What sort of returns should we be looking for?

I think that it is a good time to enter the Auckland property market right now.  This is because the property market moves in cycles and we are well in the downturn phase of this cycle.  Properties can be purchased below true value with good cashflow.  I am a passionate believer in buying for cashflow, equity and growth.

The returns that an investor can expect do differ widely, including upon which market you are looking at.  In my property coaching business NZ Wealth Mentor, one of the things I teach my clients is the importance of cashflow. This is because interest rates are at emergency low levels so you need to have a buffer for when they rise.  In terms of the various submarkets in Auckland, there are a number of very high-yielding inner-city freehold apartments.  Whilst the cashflow is very high I don’t foresee the capital growth to be spectacular.  If you are looking for positive cashflow there is an abundance of this in South Auckland, and a number of positive cashflow properties in West Auckland, as well as parts of Central Auckland. David Whitburn

Source: New Zealand Herald, Herald Homes supplement 30 March 2011.  Ask an Expert – David Whitburn

I appeared live on Close Up on TV1 on Wednesday in response to the “rental crisis” hitting Auckland. I let the host Mark Sainsbury know that this is in response to the supply and demand equilibrium, and that it is the inner suburbs of Auckland like Herne Bay, St Marys Bay, Ponsonby and Parnell that are the most effected, and in the Green Room before hand that rents are rising steadily but at lower levels elsewhere in Auckland too.

David Whitburn and Mark Sainsbury live on TVNZ's Close Up on 9 March 2011

David Whitburn on Close Up

It was an interesting experience and I felt comfortable with Mark’s knowledgeable questions and his producer’s professionalism as they screened me at lunchtime and took me from reception to the makeup room (for a light powder). Then I went to the Green Room along the corridor from the live studio.  After watching the tearjerking first article of Michelle Rambaud who is terminally ill and got married in hospital in the Green Room, I was escorted to the live studio. Then it was showtime. I start 3 mins 36 seconds through it (so feel free to scroll through until then):

Where rents are heading?

Rents are heading upwards in Auckland, based on underlying demand and some restrictions on supply with us underbuilding.  Only 15,602 building consents were issued last year and we needed to see over 25,000 to just keep up with population growth, let alone cater for people moving up from Canterbury in light of the horrific earthquakes.  The councils charging what they do with the comparatively new development contributions and the illogical denial of minor dwellings or granny flats in the previous Auckland City boundaries (ie. Avondale and Blockhouse Bay to the West, Otahuhu to the South and Glendowie in the far east), as well as the difficulties in getting construction and in particular development project finance, have all contributed to this.  Also many people are happy being tenants as they can live in a nicer area with the costs and perceived inflexibility of home-ownership.

Last APIA rent review

At the last APIA meeting as MC I decided to do a rent review and around 15 members put their hands up with properties they have let. Not a single member had lowered their rents and many had raised them quite significantly. From talking to NZ Wealth Mentor clients as well as property managers in Auckland and around the country I know that all of them are looking to raise their rents and the 6 month lock out under the Residential Tenancies Act 1986 is one of the main things preventing this.

In South and West Auckland there are stories of over 10 different prospective tenants wanting to rent properties and it is not hard to get at least a $20/week rent increase currently. In areas like Mt Wellington and Onehunga investors are raising their rents $40/week and when tenants complain to check what the rents are they are putting up with it, or leaving and the investors are finding that they can get even higher rents when they try to put on a higher price on TradeMe rentals. The mini boom that I predicted for the end of this year, has begun early!

I subscribe to Statistics New Zealand’s relevant property, housing and financial information, and was not at all to see the value of all building consents down to $537 million, which is the lowest value for any month since February 2002.  Obviously monthly statistics are not reliable as the months either side could be big months.  However the simple fact that building consents are low is best shown with a graph of residential building consents (excluding apartments which are impacted heavily by another market driver – the availability of finance).

Source: BNZ. Residential Building Consents (excluding apartments) Jan 1997 - Dec 2010

We are said to need over 25,000 building consents per year, which is over 2,000 per month.  We are struggling with around half of the consents issued to what we need currently.  The trend is shown with information going back from 1997 to December 2010, with the navy blue line being the line to watch as it is more like a 3 month rolling average clearly showing the downturn in the property market which started in 2007 and we are still in it currently.

Going back to the statistics released a little earlier today, the value of residential building consents was $309 million – down 19% from January 2010 and the lowest value for any month since January 2002.  There will actually be a large number of new (but with more stringent engineering and geotechnical requirements) building consents in light of the 22 February 2011 Christchurch earthquake.  Hopefully this will be tagged out by Statistics NZ so I can share this with you in my future blogs.

In the wake of the devastating earthquake where it looks like around 240 New Zealanders and global citizens will have sadly been killed, and many more injured, there is going to be some financial damage too.  Costs are likely to come in at over $10 billion. Fortunately this doesn’t appear that it will be against New Zealand’s Sovereign Credit Rating, nor the big 4 Australian banks (Commonwealth Bank of Australia – owner of ASB, National Australia Bank – owner of BNZ, ANZ – owner of ANZ and National Bank, and Westpac).  This would have been disastrous for Cantabrian home-owners in negative equity situations as a result of the earthquake, and also for home-owners struggling in what looks like a double dip recession (certainly it appears this way when inflation is backed out of the equation too).  This blog acknowledges the devastation on the great people of Canterbury arising from this second massive and larger giant earthquake, but focuses in on the financial impacts for property investors which include:

1. Interest rate changes
2. Insurance premium increases
3. Government policy/tax changes

1) Interest rate changes

Looking at the latest home loan rates at http://www.mortgagerates.co.nz/ you will note that there have been price movements this afternoon.  ANZ and their sister bank National Bank were the first to cut rates reducing one-year rates by 50 basis points, 18-month rates have dropped by 26 points and its two and three-year rates have fallen by 16 and 11 points respectively.  This was followed by cuts to short and medium term interest rates by ASB and their boutique sister bank, Bank Direct, Westpac and TSB Bank. This earthquake is a game changer and all previous predictions are off.  Our GDP forecast for the year was 2.3% now it has been reduced to a tiny 0.3%.  The Canterbury region which Christchurch dominates is responsible for 15% of New Zealand’s GDP. It will struggle to be anywhere like as productive as it should be, and massive Government subsidies will be required. I now predict the OCR will be lowered by 0.50% on 10 March as an emergency measure to return it to its lowest point in 40 years.  This is what the market is predicting anyway, with the flow off into short and medium term interest rates.  Take a look at the following table:

Source: Interest.co.nz - Interest Rates at 1 March 2011

2) Insurance Costs

EQC Levies

Firstly I need to tidy up the misconception that after a natural disaster everyone is entitled to a payout from the Earthquake Commission (“EQC”).  This government body was set up under the Earthquake Commission Act 1993, to provide a natural disaster fund for homeowners and tenants who hold insurance.  The levies are 5 cents (plus GST) for every $100 insured, raised from landlord’s taking out building cover and tenant’s taking out contents cover.  The most you can pay a year for one dwelling and its contents is $67.50 including GST. This will give you the maximum cover of $100,000 (+ GST) for your home and $20,000 (+ GST) for personal belongings. EQC pays the value of  damaged land at the time of the earthquake or natural disaster, or the repair cost, whichever is lower.

Dwellings are covered on a replacement value basis. Personal property is insured on the same basis as the household insurance policy covering the same property.  Some retaining walls are covered, but on an indemnity basis.

Clearly this is going to be a massive claim on the EQC and although costs have not been calculated with claims deadlines for aftershocks to the 4 September 2010 not being closed yet.  It may well be the the EQC war chest is emptied and that the Government needs to borrow funds to top it up.  Going forwards EQC levies are likely to triple and you need to budget for this cost increase.

Insurance Premiums

Private insurers and their re-insurers are going to get hit hard in the pocket.  This is concerning to property investors as insurance costs were already going up in light of GST rises and increased claims in New Zealand as a result of the 4 September 2010 Canterbury earthquake – now general property insurance premiums will be much higher too.

3) Downstream costs from Government Policy

There has been talk by the Minister of Finance Dr Bill English today of removing the middle class tax relief that is Working for Families tax credits; and removing interest-free student loans. This will restore the policy to how I had in the 1990s at Auckland University where I could get my fees and course costs paid with a low interest rate (from memory it was just under the banks floating rates).  If we borrow too much it will put our plan to get to a Government surplus by 2014/15 into jeopardy prejudicing further Government spending or tax cuts.

The volume of house sales is very slow and this has characterised the last 3 downturns.  I have been to 6 auctions and looked at over 30 properties this week which in itself is not very interesting and is particularly normal for me.  However what I am surprised about is the level of enthusiasm from some auctioneers and real estate agents in the past week, who tell me that the market is about to boom with the Rugby World Cup on and all this immigration. On looking at the statistics and being in the market I have to introduce a small dose of reality, to inform that we are not going to see a boom in New Zealand anytime soon.  I don’t see it beginning in the next two years either.  The previous property cycles that I have studied have shown that in the downturn phase the volumes of sales are very slow.  Where are the Mitre10 dream home and DIY rescue style programmes?  Look at this in terms of the median line from the annual statistics are from REINZ as graphed above.  Clearly volumes drive values and with low volumes in 1998, 2000, 2008 and 2010 we saw negative equity years as regards property prices.

In my opinion we are technically in a double dip recession and this is more clearly seen if you back out the affects of inflation which is running high now with food price rises, petrol over $2/Litre at the pump again, tobacco and alcohol price rises, and of course the impact of the 2.5% GST rise.  Yet the nominal (inflation adjusted) house prices don’t get reported by Quotable or REINZ sadly.  Back out inflation and house prices are going down and are over 10% below their November 2007 peak.

Does that mean it is doom and gloom and you can’t make money out of property? No – I like my mentoring students and property investor friends are able to get great deals well below true value and in many cases with the ability to buy below value right now.  Recently my sister and soon to be brother-in-law bought their home in One Tree Hill around 10% below value.  There are investors selling thanks to tax changes, media doom and gloom headlines, fear and lack of understanding of the market and the property cycle.

Which market are you looking at?

So it is important to remember what market you are looking at.  Is it New Zealand?  Is it Auckland?  Is it Epsom, Remuera and Parnell near Auckland’s CBD?  Is it Papakura and Takanini?  Is it small Waikato and Bay of Plenty Towns?  Is is Christchurch houses within 5km of the CBD?  We have a number of sub-markets in New Zealand and some are feeling the pinch a lot more than others, and some (eg. the Epsom, Remuera and Parnell) are selling well in excess of CV and having massive rental rises and give the appearance of being in a more advanced phase of the cycle and in a recovery.  Yet friends with a house in Taupo haven’t been able to sell it for over 12 months and will sell it under CV…  Unfortunately statistics tend to generalise though, which is the same in stockmarkets, as some stocks are performing extremely well, and other are really struggling.

Auction strategy 4 (low opening and irregular bidding pattern)

I opened an Unlimited Potential (“UP”) auction up by bidding on a property being auctioned in Sandringham at $100,000.  That low initial bid in itself isn’t a crime! It is a little bit low on a property with CV of $440,000 and my tools and research indicating that houses within a 500 metre radius of it selling in the past 12 month at 12.62% above CV on average. However when he questioned the bid I followed up that with the supporting fact that it is a double dip recession.  I wasn’t trying to throw the auctioneer (Mark Sumich) off his stride, I wanted to outline the case for my bid to get him to accept it as I wanted that property to convert into a 3 bedroom under the same roof line to transform and add significant value to what wasn’t a fabulous renovation or layout.  I then used my auction strategy four of bidding assertively with irregular increments ranging from $200 (not accepted) so bumped up to $250 – $10,000, including some increments of $300, $1650 and $800.  On chatting to a UP agent he said my bidding pattern was irregular yet sophisticated and through off his buyer as they were not up with the play being pretty new to auctions.  Unfortunately I didn’t win this well located property as it exceeded my maximum bid, as I was up against two home-owner who don’t need to buy properties tens of thousands of dollars below true value.

At Barfoot and Thompson’s Chancery CBD HQ, the loquacious Marian Tolich stated “it always a good time to buy property” and then followed it up with a very emotional statement in “you can never pay too much for a good property” while engaging both a middle eastern looking and chinese buyer for a nicely done up 3 bedroom home in Epsom (so it obviously has the extremely coveted Auckland Boys Grammar and Epsom Girls Grammar dual zones).  The battle of egos ensued and the price paid was nearly $100,000 higher than the Vendor’s reserve (when it was “on the market”) and if my memory serves me right over $250,000 over CV.  The Epsom Vendors did very well indeed.  Yet other properties in the suburbs further out from the CBD had far less attention and didn’t meet vendor’s reserve, necessitating lots of offer crunching to make a deal happen.

REINZ House Price Index

Just a quick one to respond to two reader’s emails after my Quarterly Market Update seminar on Tuesday – here’s a statistic from REINZ mentoring students of mine have asked about.  It is the REINZ House Price Index.  I like REINZ and their work and the many fantastic agents we have in NZ, but I don’t rate this index as highly as the Quotable Value Quarterly House Price Index and nor does the Dr John McDermott (former Chief Economist of National Bank and a current Deputy Governor of the Reserve Bank).  Yes the market was low in January 2009 and that shows well, but it doesn’t show the 2010 mini dip very well at all, whereas the QV one does.

The take home message is that the market is a confusingly large one and there are many sub-markets.  Rents are skyrocketing in inner suburbs and eastern beaches (Kohi, Mission Bay etc) of Auckland and well located areas of the North Shore (eg. eastern beach suburbs) – more on that later.  There are opportunities in this market.  Ensure you buy below value and renovate to add value.

Property Masterclass

If you want to know more on how you can do this come along to Property Masterclass on Saturday 19th and Sunday 20th of March.  I will be presenting for 2 days on relevant market conditions, strategies and techniques to succeed in this environment, as well as covering off property investment basics for those contemplating investing.  Hope to see you there!

On a stunning summer’s day yesterday at the well appointed Exhibition Hall in Waipuna Conference Centre, overlooking the Panmure lagoon, I was the keynote presenter at Property Masterclass run by NZ Wealth Mentor.

David Leon - Property Masterclass Master of Ceremonies on 27 November 2010

I covered a lot of topics as the keynote presenter, and those attending particularly enjoyed my take on the market, drawing attention to where we are at in this current stage of the property cycle and my predictions for the future in terms of the various Auckland sub-markets.  I gave a thorough analysis of all of the key market drivers, showing and interpreting graphs from the economics and research of the major trading banks, Reserve Bank of New Zealand, Statistics New Zealand, Quotable Value and the Real Estate Institute.

In another segment on stage I talked about how we as investors are running a property business and the fact that we have to wear a number of hats.  One of the leading property educators in the United Kingdom Gill Fielding talked about the importance of being skilled in a number of different disciplines wear you have a number of buckets to control or hats to wear.  I love this analogy so I talked about the various hats we have to wear as property investors in terms of the CEO hat – managing everything in our business; CFO hat checking our bank statements, keeping accounts, monitoring the financial performance of our portfolio, paying taxes, Renovations/Maintenance hat – looking at how we maintain our very valuable assets and renovating to increase our cashflow and equity; Legal hat – when doing due diligence on properties, looking at legislation changes and ownership structures; and Property Management hat on – where you have to manage your tenants or your property manager, to ensure you minimise vacancies, charge market rent and collect your rent and take the appropriate action when tenants are not behaving,  I also covered ownership structures, including the key changes in light of LAQCs losing their potency in that they lose the ability to offset losses against personally earned income.  The new tax structure the Look Through Company (“LTC”) was introduced too, with Chartered Accountant and my colleague from Deloitte Tax many years ago Amanda Macdonald (Tasman Tax and Accounting Services based in Albany) also presented on this topic being the tax and accounting expert she is.

Finally I gave covered my opinions on US tax deeds and liens that have been promoted in New Zealand heavily over the past couple of years, and I covered the good, the bad and the ugly things about lease options, giving an example of the massive win-win situation created in my last lease option deal that resulted in my tenant buyers settling the property and giving me a giant hug as they achieved their dream of being home owners in New Zealand, as well as the sheer joy of meeting their goal.  I also enjoyed presenting on the strategies I am using in today’s market and covered my revamped and intense mentoring programme where I take my mentoring clients out to do deals with me.  I have some new clients from this event and am looking forward to training them shortly.

Other speakers

Senior Resource Management lawyer Andrew Braggins talked about the spatial plan for Auckland the Supercity, which highlit the growth areas in the Auckland region, major infrastructure and planning thoughts from the head planner and CEO at Auckland Council, who are in Andrew’s network.  This presentation was enjoyed by attendees who were impressed with Andrew’s knowledge and communication skills, as he enlightened them about the hot spots in Auckland.

Andrew also briefly covered how to dispute council fees, levies and contributions both under the Building Act (including seeking a determination from the Department of Building & Housing) and also the Resource Management Act (including a judical review application he recently did on a property he rents out).

Jan Galloway then gave a masterclass in property management, including listing out the issues in relation to the Residential Tenancies Amendment Act with the fines for unlawful acts by Landlords and Tenants all covered – luckily these were included in the comprehensive bound manual we gave our event attendees.

Renovations expert Mark Trafford told attendees about a number of ways not to do renovations in a photo driven presentation.

Gary Hey, a director and shareholder of large mortgage broking firm, Mortgage People, then address the property cycle from a finance perspective.  He talked about how lenders’ criteria are changing and it is much easier to get finance for property now (compared to say 6 months, 1 and 2 years ago).

International Rating Agency Standard & Poor’s (“S&P”) has lowered the outlook on NZ’s AA+ sovereign credit rating to “negative” from “stable”. This is not great news for New Zealand borrowers as if New Zealand’s sovereign rating were actually downgraded to only AA our interest costs would rise.  This would have an impact on business owners and struggling home owners and property investors, as we continue to navigate our way out of this cyclical downturn slowly but surely.

S&P Sovereign ratings credit analyst Kyran Curry stated:

The outlook revision on the foreign currency ratings reflect our recognition of the risks stemming from New Zealand’s projected widening external imbalances in the context of the country’s weakened fiscal flexibility…

New Zealand’s vulnerability to external shocks, arising from its open and relatively undiversified economy, also raises risks to the country’s economic recovery and credit quality.”

Standard & Poor’s stresses, however, that these weaknesses are mitigated by New Zealand’s fiscal and monetary policy flexibility, strong institutions, economic resilience, and its actively traded currency.

The main risk to the ratings would be a significant weakening in the credit quality of New Zealand’s banking sector, which is largely owned by the Australian banks.  That said, however, a range of factors ameliorates some of these risks, including a high degree of foreign-currency-debt hedging and an actively traded currency. New Zealand has independent and effective monetary policy settings with a highly traded and free-floating currency that allows external imbalances to adjust. A large portion of the nation’s external debt is denominated in New Zealand dollars, while much of the remainder finances companies with revenues in foreign exchange or is hedged. In sum, we view New Zealand’s financial and capital markets as supportive of the rating.”

The negative outlook on the New Zealand foreign currency ratings reflects the possibility of a ratings downgrade if New Zealand’s external position does not improve. Rising public savings will be an important component of such an improvement.

The rating could fall, too, if New Zealand’s current account weakens because of any higher real cross-border funding costs within its banks. On the other hand, the ratings could stabilize at the current levels upon a sharper-than-expected improvement in the external accounts, led by stronger export performance and higher public savings.

New Zealand needs to tackle its growing government deficit in the light of softening international prospects.  We are still borrowing over $200 million a week, which is over $10 billion per year.  This has a significant interest servicing cost and the potential to place a noose on future generations of taxpayers.

A major issue is that together New Zealanders always want to borrow a lot more than other New Zealanders are willing to lend.  As a result the difference has to be imported, which means that the net international liabilities of New Zealand (note that this is private and not Government debt) at 30 June 2010 was NZ$164 billion.

The private debt our economy has is akin to that of Portugal, Ireland, Greece and Spain (the “PIGS” countries that are stressing global financial markets) and has long been pointed to by the credit rating agencies as a significant problem.

John Key’s thoughts on this

Our Prime Minister John Key thinks that Prime Minister the downgrade in outlook by S&P is because of NZ’s high private indebtedness and S&P’s reassessment of risks following the Irish banking crisis, where a bailout up to $100 billion Euros may be required (similar to the bailout Greece had).  Concerns are mounting on Portugal’s debt and to a lesser extent Spain too.  As a result S&P felt they had to put us on a negative outlook. John Key said:

In fact the Finance Minister (Bill English) met with Standard and Poor’s two weeks ago, (and) there were no specific issues raised at that point.

With the position in Ireland, that has had an impact on their (S&P’s) assessment of countries that have an over-reliance on debt.

What I will say though is the way it’s been positioned by S&P and other rating agencies to us is, if your [public] gross debt to GDP or net debt to GDP is less than 30%, then you are in a small group of countries for which the rating agencies have no concerns in that regard.

That was absolutely where New Zealand was positioned, with a very small group of other countries – Korea, Australia and one or two others”.

Bill English – Minister of Finance’s View

Bill English issued the following press release to explain the situation and he points out it is private debt and not Government debt which is the issue (as John Key did), and he re-iterated the Government’s commitment to balance the books and return to surpluses by 2016.

Standard and Poor’s decision to put New Zealand’s foreign currency rating on negative outlook highlights the need to reduce our heavy reliance on foreign debt. This is a long-standing problem for New Zealand and has left us vulnerable as a country. The Government is taking steps to reduce this external vulnerability and to move the economy towards savings and exports.

They include the tax changes in the Budget this year and work currently underway with the Savings Working Group. From here, it’s important that our economic programme continues.

Standard and Poor’s praised the New Zealand Government’s commitment to get back to budget surplus by 2016, and it noted that New Zealand had outperformed most other advanced economies in the past two years.

However, it said the negative outlook on New Zealand’s AA+ foreign currency rating reflected risks stemming from its widening external imbalances and relatively low levels of national savings.

As Standard and Poor’s notes, New Zealand’s household liabilities – at about 156 per cent of disposable income – are 50 per cent higher than 10 years ago.

Banks and the Government, which are borrowing in volatile international financial markets, face higher interest costs on their increasing debt. In the past 10 years alone, New Zealand’s net foreign liabilities have jumped from about $90 billion to more than $160 billion.

Bill English also pointed out that, despite the negative outlook on its AA+ rating with Standard and Poor’s, New Zealand still enjoys the highest possible Aaa (stable) rating with Moody’s (another International Rating Agency).

I think we have to watch this space and the international events we are faced with that create an environment of uncertainty.  Also consider negotiating some good interest rates on 2 and 3 year fixed rate periods with your lender, as I just don’t see these rates getting materially cheaper (the odd cut up to 0.1% for competition reasons aside may happen) and I don’t see the floating rate being decreased in the short or medium term.

The Centre for Housing Research Aotearoa New Zealand (CHRANZ) has come out with a large report detailing the housing needs for our country’s largest city and economic powerhouse, Auckland.   I invest in Auckland, and as President of the Auckland Property Investors’ Association, I was very pleased to read this report.  The news is excellent for Auckland property investors as it shows demand for Auckland housing is increasing which will put up values and rents in the long-term, and once we exit the downturn phase of this current property cycle, we will pass into the recovery phase and see a strong wave of rental increases and sound value increases, and then the boom phase will arrive where we shall see very strong capital growth (in excess of 10% per year).

The good news is that Auckland’s strong population is set to continue, and demand will increase from the 431,890 dwellings there are in the Auckland Region (ie. Auckland – the Super City) in 2006 at census time, by 39.3% to 601,420 by 2026.  This is a lot of demand that will only help property investors in terms of raising our rental income streams and also getting increases in the value of our properties.

Auckland our Super City - view north from Mt Eden

The world knows that Auckland is a fantastic place to live, as does the rest of New Zealand, even if some are too proud or scared to offend relatives in their former regions they have left to admit it.  In a repeat of last year’s result, Auckland was 4th (tied with Vancouver, Canada) in the 2010 Mercer Quality of Living annual survey out of all cities in the world.  Interestingly the 2006 New Zealand Census results showed 37% of Aucklanders were not born in New Zealand, and this number is thought to continue its rapid trend upwards.  With a lot of Kiwis wanting increased employment, income, business investment and entertainment options in an extremely desirable city, many current Aucklanders were not born in Auckland.  With an increased focus on high technology and service related jobs this century, manufacturing and indeed elementary and semi-skilled roles are not as necessary as they used to be.  As a result Auckland is getting what it needs younger and skilled migrants.  Auckland’s immigrants have a higher employment rate than New Zealand born Aucklanders.

CHRANZ’s Housing Projections for Auckland

The first report CHRANZ released was called Auckland Region Housing Market Assessment: 2006 – 2026. This stated that population growth will continue to strongly drive the Auckland region’s housing demand in this period.  This growth will require an extra 169,530 dwellings, which is a 39.3% increase to what we had in 2006.  A lot of the demand is from older people, and is for smaller, rental households.

Auckland needs to have a lot more dwellings...

By 2020 some parts of Auckland will not have sufficient residential land available to develop, meaning only one thing for prices and rental levels – they will go upwards as demand outstrips supply.  This is particularly so for the central Auckland isthmus (what used to be known as Auckland City – the area subtending the northern reaches of the Manukau Harbour and southern reaches of the Waitemata Harbour, including Auckland’s CBD, going as far east as the suburb of Glen Innes and as far west as Avondale).  51% of the employment growth will be in this subregion, but this area has a maximum capacity of only 32% of the Auckland region’s dwelling capacity.  Auckland Council’s planners will have to pay attention to this, as there will be more pressure as people continue to commute into the isthmus from the South, South-East, West and Northern parts of Auckland, and also East by boat from beautiful Waiheke Island.

Auckland's Waiheke Island

Key findings to help your Auckland property investments:

Other key findings from this Auckland housing report include the fact that renting continues to be increasingly popular.  Home ownership has reduced from 70.7% in the 1996 census to 66.9% in the 2006 census.  The fact that demand for rental accommodation (63.5%) will continue to greatly outstrip demand for owner-occupied dwellings (26.2%).  Affordability will be an issue with 39.6% of all renter households and 49.4% of all privately rented households (excludes Housing NZ) having to spend more than 30% of their household’s total gross income on rent and other housing costs (eg. water rates).  The size of the Intermediate Housing Market (‘IHM’) which is the number of private renter households that have at least one member in paid employment who cannot afford to purchase a dwelling at the lower quartile sale price, assuming standard bank lending criteria are applied, has increased from 39,700 to 77,100 households between 2001 and 2009.  Interestingly housing demand will be particularly shaped by the growth in older, couple-only and single-person households and will increase demand for smaller one and two bedroom dwellings.

Auckland Map

Lower demand for home ownership amongst younger households

In CHRANZ’s second report they covered the patterns and dynamics of housing demand among younger Auckland households.

It said the younger households age group (20-40 year olds) had experienced New Zealand’s biggest fall in home ownership rates between 1986 and 2006, with Auckland once again leading this national trend:

• 17.9 percent among 25–29 year olds;
• 17.7 percent among 30–34 years olds; and
• 15.5 percent among 35–39 year olds.

On Saturday the 27th of November 2010 I will be the keynote presenter at NZ Property Masterclass – a full day seminar at Waipuna Hotel & Conference Centre in Mt Wellington, Auckland (near Sylvia Park on the edge of the Panmure Basin), with standard tickets at just $29, and gold tickets at $98.

Improve your financial knowledge, get updated on the current market and learn what strategies I am using for wealth creation for the remainder of this year and in 2011.

My topics covered

Come hear me present live at NZ Property Masterclass event, where I will be talking about:

• Loss Attributing Qualifying Companies (“LAQCs”) being abolished and introducing the new tax structure, the Look Through Company (“LTC”)
• a Market Update with my opinions on where the market is heading for 2011 backed up by graphs and facts
• the untold truth about US Tax Deeds and Liens to follow up from my popular blog in March
• the good, the bad and the ugly with Lease Options, and a number of lease option promoters
• how you can create wealth in 2011, using the strategies I am successfully using on NZ properties in the current market.

Also included in the low $29 ticket price is access to 5 other fantastic speakers.

Your other speakers

Speaker #2:  ANDREW BRAGGINS  LL.B, BSc - Buddle Findlay

1. Local government, environment & resource management, litigation and dispute resolution expert
2. Andrew advises a range of clients, including developers, network utility operators, local authorities and financiers
3. Andrew has an in-depth insight into how local authorities work, having spent 3 years as a local government in-house council, and acting for many councils
4. Member of the Resource Management Law Association & Water NZ
5. Barrister & Solicitor of the High Court of New Zealand

Learn all you need to know about how to deal with councils, the structure of the new Supercity and the Supercity’s impact on you as a property investor.

Speaker #3: JAN GALLOWAY  BA Cert. Crim (Criminology) - Corinthian Management

1. Principal Corinthian Property Management
2. Over 25 years as a property manager
3. Multi-millionaire property investor
4. Managed a leading central auckland property management division
5. Auckland Property Investors Association Board Secretary
6. Multiple award winner (property management related)

Jan knows all you ever needed to know about tenancies and the issues that arise from them.

Speaker #4: MARK TRAFFORD - Owner of Renovate to Profit

1. Principal of Renovate to Profit and Maintain to Profit
2. Renovating properties for over 20 years!
3. Accomplished Property Investor
4. Regular Contributor to Property Investor Magazine
5. Sought after speaker

Mark is an excellent property investors knows everything there is to know about renovating properties having done many dozens of properties.  He is an excellent project manager with unparalleled networks of quality tradespeople.  Join us and learn more about creating wealth through smart renovations!

Speaker #5: GARY HEY BCom - Mortgage People

1. Owner and Director of Mortgage People, a leading Auckland based mortgage broking firm
2. Bachelor of Commerce, member of the NZ Mortgage Brokers’ Association
3. Commercial, Industrial and Residential developments advisor as well as residential investment properties financing expert
4. Sought after speaker having a background in education

The banks and other major lenders criteria are changing and it is easier to get finance for property now.  Gary loves finding funding for your deals.  Bring on your best questions forward and he and his team will be there to assist you.

Overview of key topics covered during the day

1. The current market cycle – using current & historic data to identify our current position & determine where, when & how to purchase your next property deal
2. LAQCs & LTCs & what it means to your investment portfolio
3. Practical strategies to increase your rent easily in the current market
4. Hot strategies for 2011 – the strategies NZ Wealth Mentor’s principals and mentoring are using to make money from NZ property today, and how you can meet your financial goals in 2011
5. Understanding the new paradigm for obtaining finance – How to get banks to lend you $$
6. Where are the best strategies to use in 2011?
7. The untold truth about US Tax Liens & Lease Options – what you must know before you ever think of investing on them.

We will discuss all the current hot topics so that you can leave the event well informed and ready to invest successfully.

2 Ticket Options

There are standard tickets priced at just $29 which don’t include lunch or any extra.  The Gold Tickets however are priced at $98 and these include a delicious buffet lunch in a private room with David Whitburn and many of your presenters.  You also get a portfolio review and wealth plan by NZ Wealth Mentor’s head of property mentoring and Auckland Property Investors’ Association President, David Whitburn, to help you set and reach your financial dreams.

So are you going for GOLD???

In NZ Wealth Mentor we want to make sure you get all your financial goals. If you book online before November 20th we will also include our “Financial Mastery Success Plan” in the ticket price. Financial Mastery Success Plan is designed to look at your financial situation today to build a brighter future. It retails at $175 and you will get it for free as a part of this time constrained offer (3 days to go). Make sure you don’t miss out and book your gold seat (select from the menu) for NZ Property Masterclass today.

Quotable Value, the Government Valuation agency released statistics today showing that we are still in the downturn phase of this current property cycle.  Property values have declined by 1.1% since 31 March of this year.  Values however are 3.1% above where they were on 31 August 2009, but this is 5.0% down from the peak of the last boom in 2007.

Lets take a look at the past 5 years to process the QV statistics graphically:

You can see the market growing relatively rapidly (and not just because the left hand axis starts at 70% and not 0%) from August 2005 to August 2007 and then reaching a plateau like Table Mountain in the Coromandel Ranges that I used to like tramping in.  Then in April 2008 to April 2009 the market retrenched nearly 10% from the peak.

I Love Auckland – New Zealand’s Super City

I feel it is important to focus on Auckland as I am an immensely proud born and bred Aucklander, and the fact that Auckland is our nations economic hub and New Zealand’s biggest city by far. Interestingly Mayor of Auckland City, and leading Super City (Auckland region) Mayoral Candidate John Banks said in his address to the Auckland Property Investors’ Association (APIA) last month that people are looking at migration decisions (both immigration – coming into Auckland or emigration – leaving it) as being an issue between cities and not countries.  Therefore it is important to know where we our leading city stands.  Mercer, an international recruitment and consultancy firm, publishes an annual survey of all the leading cities in the world.  In the 2010 Mercer Quality of Living Survey Auckland defended its 4th position (equal with Vancouver in Canada).  Wellington deserves an honourable mention at 12th this year too.

The statistics for the Auckland region show a fairly similar story to the rest of the country which is unsurprising since Auckland property sales make up over a third of the index, so it is most heavily weighted in Auckland’s favour. However the statistics do show that Auckland suffered a slightly deeper decline than the rest of the country in 2008 and into mid 2009 before an encouraging recovery to be at 31 August 2010, only 2.4% down from its late 2007 peak:

Is it right to lump all of Auckland together?

From a personal perspective the statistics need a little bit of fair review and criticism here, as it is perhaps unfair to lump a city of over 1.4 million people together as one market.  We could be more relevant and break Auckland down into the CBD to include our apartment market, into East Auckland, which is so different from South Auckland, yet united by being part of Manukau City, West Auckland, Central Auckland (again so large that this should be split up as the more affluent areas are so different from the middle of the road areas), the North Shore, Papakura etc.  I wish QV would break down the statistics in this fashion – after all these sub markets are far bigger than small cities like Dunedin and Hamilton, and both Auckland City and Manukau City (South & East Auckland) are bigger than both Wellington and Christchurch. Since I don’t have this data for these sub areas, or separate housing markets of Auckland, I will have to give you my own take on things.

Interestingly last year some self proclaimed Property Gurus and real estate agents mistook the mid to mid-late 2009 price increases as being a sign that we are in the boom.  They got it wrong.  This in actual fact was only a slight recovery after a severe decline in 2008 and early 2009 – the statistics from QV above clearly show this.  My mentor in 2003, Kieran Trass of the Hybrid Group, showed me that in each of the previous four property cycles that the slump (or what I like to call downturn) phase of the property cycle lasted longer than the boom immediately preceeding it.  APIA’s principal sponsor ANZ, had Craig Moffat stating at the NZPIF Conference in 2009 the very same thing. I currently believe that we will be in the downturn phase for at least another 2 years, before the recovery begins.

I want to share with you my story which comes from helping my younger sister purchase her first house. I have been to many centrally located auctions in Auckland over the past 12 months or so with Barfoot and Thompson’s Wednesday afternoon ‘mega’ auctions at their lovely Chancery Court building in the CBD, and onsite in homes in Epsom, Mt Eden, Ellerslie, Remuera, Parnell, Kingsland, Ponsonby, Westmere, and Grey Lynn.  There were many people going to auctions and some crazy prices bid, particularly towards the end of last year and early this year.  However now in these centrally located affluent suburbs of Auckland there seem to be fewer buyers than before and in general the bidding isn’t silly, but the prices achieved are often pretty good.  This is an interesting “market depth” issue as the volume of sales is very low (see graphs from Realestate.co.nz Limited below for 1. New Property Listings which are well down,  and 2. Inventory – the number of weeks to sell all of the listed property.  Note that Auckland has a 36 week inventory as a region, so we are not as bad as the 46 weeks graphed which is the NZ overall inventory):

The reported sales for July from REINZ were 4,411 which was the lowest July on record, down 27% from July 2009.

So from around April 2009 onwards the Auckland prices had a slight recovery but there is downward pressure again without much wage inflation, with a necessary change in mindset to reduce debt and to get away from the I want it now mentality and going back to needs and not wants.  Also investors are shortly going to feel a bit of a pinch with depreciation changes and paying 2.5% more on rates, insurance, property management fees and repairs & maintenance costs.  That is counterbalanced somewhat by receiving some personal tax cuts, but the positive impact of tax cuts combined with the negative impact of depreciation expenses being decimated plus GST rises mainly provide a net benefit to investors with small portfolios (1 – 2 rental properties).   There will be a spin-off for houses in medium and higher value areas as they will have a vast number of people earning over $70,000 per year and having their personal tax rate slashed from a very high 38% to 33%.  More money will be spend on improving housing, new kitchens that were held out for the past two years, upgrading that cracked driveway, improving the gardens, and some more consumable spending like getting that new 55in LED TV will happen as well.  My sister is still looking for a home with her fiancee in central Auckland near her CBD office.

Increase Your Rents

I got called earlier this afternoon by the New Zealand Property Investor Magazine to talk about rents in Auckland.  I talked about splitting Auckland up into sub markets as above, and noted the performance in particular of the North Shore which has had strong rental demand in general.  The pressures to increase rents are present, but are stronger in the more affluent areas – the tax cuts tenants will be receiving, plus landlords facing increased expenditure from GST rises, the ill fated Emissions Trading Scheme and the slashing of our depreciation expenditure mean tenants acknowledge that they will be facing rent increases.  Since like the rest of New Zealand the Auckland Property Market is still in a downturn, waves of capital growth aren’t coming anytime soon as we have yet to even reach the recovery phase of the property cycle.  So lets not let our tenants down!  Give them the rent increases they expect.

Acknowledgements: www.realestate.co.nz and www.qv.co.nz for their excellent statistical collection and compilation