Investing Guide

Investing in property can be a lucrative game if you get the details right and the market dynamics at the time suit what you are trying to achieve. Just because you are investing in bricks and mortar doesn't mean there is no risk - do your homework, an uninformed property investor is gambling not investing.

 

1. What you want to achieve

By deciding what you want to achieve, you will have a better idea of how to tailor your plan going forward.
Things to think about include:

Do you want to buy a rundown place, do it up and flick it on relatively quickly?

Or do you want to invest in properties to then rent out and hold onto waiting for capital growth (a value increase over time)?

Do you want to invest in commercial or residential property.

2. Know the market

Understanding the market will mean you can get an idea of what you should be paying and whether you are likely to get yourself a bargain or if will be paying above market value – each of which can affect your gross yield or end profit. You will need to consider also which suburbs are the best to invest in. You can find a range of stats on different suburbs across the country as well as how the market is trending in Property Trends. Look up individual properties in the area, check out what they are selling for, look at the E-Valuer trends for both individual properties and the suburb, check out the market rents - spend that extra time to understand what is happening in the market.

3. Do the math

Depending on your aim, you will need to do the math to figure out what makes financial sense. If you are renovating to sell for a profit for example, you will need to factor in the purchase price, how much renovations will cost, how much you are likely to sell for, and of course any fees whilst you own the property such as real estate agency fees, mortgage repayments, rates etc.

If you are looking to rent the property, then you will need to consider how much all the bills add to, including mortgage repayments, rates, body corporate fees if applicable, insurance, legal costs for tenancy contracts etc, and then see if you make any profit after receiving a reasonable market rental income. You can get a gauge for rental prices by looking at our Rental Analysis info . You can of course be interested in capital gains from market movement, but you still need to make sure you aren’t making a loss whilst you own the property.

4. Know the risks

As with everything, there are associated risks. You will need to talk to the banks and get advice on things like mortgage options, interest rates, how much you will need as a deposit and how much they are willing to lend. With simple things like increased interest rates, you may see your profit reduced.

If you are renovating you don’t want to get caught short if your costs start racking up, or if they get delayed. You need to be sure you can cover the costs and that you have contingencies. The same with having tenants – you need to be able to cover the costs if it’s untenanted, and you have contingency funds if the property needs repairs and maintenance.

Understand the rules. Whether you decide to do-up a property or rent it out there are rules in place that you will need to know and adhere to. For renovations, you may need council consent for certain projects for example, whilst when tenanting there are different rules around collecting and lodging bonds from your tenants, contract obligations, and rules on being a landlord.

5. Understand the rules

Whether you decide to do-up a property or rent it out there are rules in place that you will need to know and adhere to. For renovations, you may need council consent for certain projects for example, whilst when tenanting there are different rules around collecting and lodging bonds from your tenants, contract obligations, and rules on being a landlord.


Latest News & Articles



The Reserve Bank (RBNZ) has reduced the official cash rate (OCR) from 1.50% to 1.00% – no surprise that they cut; but the size came as a bit of a shock. Clearly, this is supportive for the residential property market, although the pass-through to mortgage rates is likely to be less than 0.50%.

CoreLogic Senior Property Economist Kelvin Davidson comments:

The decision to lower the OCR was universally expected, but nobody was talking about a 0.50% cut (the expectation was for 0.25%). With such a big cut, you’d be forgiven for thinking that this has been driven by fear. However, with the forecasts that the RBNZ has also published today still envisaging decent economic performance, the motivation is likely to be ‘shock and awe’. They’ll hope this keeps the economy ticking over by delivering lots of stimulus all at once.

Clearly, today’s cash rate cut will support property demand and prices, especially when you also consider yesterday’s labour market figures showing that the unemployment rate remains very low. However, we doubt that an even lower OCR will cause the housing market to roar back to life – after all, mortgage rates already seem to have ‘priced in’ the low OCR environment, and the banks will probably also be looking to maintain their margins in advance of any extra capital requirements that could kick in from April next year.

On top of that, as we outlined in this morning’s CoreLogic QV House Price Index release, tight lending criteria (income/expense & serviceability testing), are arguably the biggest restraint on the residential property market at present. This means a lower OCR and/or mortgage rates would have little effect anyway.

Overall, the remaining 4-5 months of the year will be really interesting for monetary policy and the housing market, even if further OCR cuts may now no longer be seen. The key things to watch for will be a probable loosening of the LVR rules in November, but on the other hand, some of that fuel being taken away by scope for tighter bank capital requirements.



Property values in NZ remained firm in July with the annual rate of change increasing slightly from 2.0% at the end of June to 2.2% at the end of July, according to the CoreLogic QV House Price Index. 

According to CoreLogic NZ Head of Research Nick Goodall, the relatively neutral performance reflects a market which has been gradually slowing since the beginning of 2018, but remains supported by low inventory and mortgage interest rates.

He said, “Demand for property is constrained by the current credit environment, which retains strict scrutiny on potential borrowers’ income as well as expenses, and of course the RBNZ mandated LVR restrictions ensure that most borrowers have at least a 20% deposit. However, in regions where inventory is tight, prices continue to rise, albeit at generally slower rates than we’ve seen in the past three years.”

Property values in Auckland continue to slip backwards (-2.6% annual change), however the recent decline (-2.9% behind peak value in March 2018) should be put into a longer term context of 42% total growth over the past 5 years.

 


Unaffordability, as well as the removal of foreign buyers continues to impact the market in our largest, most expensive, city. This is particularly true of the North Shore, where values are -4.3% down in the last year and -5.2% down from the recent peak in February 2018.

The average number of days to sell a property in Auckland has continued to lengthen over the last few years as an increase in inventory, and a reduction in demand favours potential buyers.

While Auckland is the only major centre to see property values decreasing on an annual basis, the other main centres are experiencing less price pressure as unaffordability impacts the potential buyer pool. Property values in Tauranga for example, have decreased by -0.3% in the three months to the end of July. 

Similarly, Wellington City values are down -0.5% over the same period, although the strength throughout the wider Wellington area means that the broader market, which includes Porirua and both Lower and Upper Hutt, continues to grow (+0.9% three months, 8.5% p.a.)

 


Rolling annual change in property values

A recent investor resurgence (37% of sales in Q2 compared to 33% in Q1), particularly those with only one other property, has been evident across many parts of Wellington. This could be a reflection of a lift in confidence following the ruling out of a comprehensive capital gains tax back in April. Nick Goodall said, “It’s important to note first home buyers are still a key player in the wider Wellington market, in particular in Porirua where 36% of all sales were to this buyer group in the second quarter of the year.” 

Outside the main centres, the cities with the lower average property values were the best performers over the past month. Whanganui (21.7% p.a.), Gisborne (16.1% p.a.) and Invercargill (13.6%) all experienced an increase in the annual rate of growth at the end of July and have an average value below $365,000. 

 

Average Property Values, Main Centres


Meanwhile, those cities with an average value above $540k generally saw the annual growth rate fall away. The annual growth rate of 2.9% in Whanganui, where the average value is $547k, is the lowest rate for over four years.

Nick Goodall said, “As more responsible lending standards in banking are now well embedded in the industry, the areas requiring larger mortgages are seeing the greatest slow down. We’re also seeing the impact of equity-rich Aucklanders diminish. As recently as 2016, buyers from Auckland (either investors or movers) accounted for 23% of sales in WhangÄ?rei; that figure has dropped to 14% so far in 2019.”

“As expected, growth in some of the regional areas are running out of steam, after a strong growth phase of almost four years. Rotorua, Whanganui, Hastings, Napier, Queenstown and Gisborne have all seen property values increase by more than 60% over that time.”

In summarising the current market and outlook, Goodall added “While the economy is continuing to slow down and many forecasts are for this to continue, from a property perspective the outlook is slightly more optimistic. Net migration remains high, unemployment low and mortgage interest rates are forecasted to stay low for longer.”

“In the immediate future, the RBNZ cash rate decision tomorrow (Wed 7 August) is almost certain to be a 0.25% cut to 1.25%, but we’re not expecting this to translate to an equal drop in mortgage interest rates (mostly due to the cut already being priced into rates) and therefore a rate cut probably won’t have too much of an impact on property values. 

Goodall believes that part of the reason for this is that current mortgage interest rates aren’t necessarily the most significant barrier to entry into the property market at the moment. He said, “Serviceability tests, using a greater than 7% mortgage interest rate, along with the deposit requirement (in conjunction with higher property values) are restricting demand, hence our expectation that one or both of these could see a change later in the year.”

 

Annual change in dwelling values Provincial Centres


In addition, he said, “The LVR restrictions could be loosened by the RBNZ in November when they release their next Financial Stability Report, as they did at the end of both 2018 and 2017. As long as they believe that housing lending risks have continued to reduce, they may adjust the restriction on the amount of lending (from 5% to 10%) the banks can do above the high LVR limit (70%) for investors. With owner occupied lending not as constrained as investor lending, there’s less likelihood of a change to the owner occupier limits.”

”Less discussion in the market around any changes to the serviceability rate (of greater than 7%) is interesting, considering the recent change in Australia where the Australian Prudential Regulation Authority (APRA) removed the floor of testing repayments at 7% and introduced a 2.5% buffer (from actual secured interest rate) instead.”

“Once again, we’ll read with interest the Reserve Bank’s Monetary Policy Statement tomorrow (Wed 7 August) for any possible hints, but for now it seems the lending environment in NZ will remain as is for the time being (aside from the lower OCR).”

Note to editors: The CoreLogic QV House Price Index is the most comprehensive long term measure of house prices as it includes agent and non-agent sales. It also includes some recent sales before the unconditional date (contrary to some commentary) so does not have the previously reported 6-week lag.

 



There’s no doubt Aucklanders have been significant players in regional property markets in the past and, understandable, given that the average house in Auckland could be sold and traded for multiple properties elsewhere. However, using Tauranga and Queenstown as examples, the share of owner-occupier purchases in these areas that have recently gone to relocating Aucklanders is low. And in Hamilton, for example, the share of purchases going to investors from Auckland is also low.

CoreLogic Senior Property Economist Kelvin Davidson writes:

The CoreLogic Buyer Classification series shows that in the second quarter of the year ‘movers’ (i.e. existing owner-occupiers who are relocating) accounted for 27% of all property purchases across NZ. As the first chart shows, this was the lowest figure in about eight years and a couple of percentage points below the long-term average of 29%.

NZ % of property purchases (Source: CoreLogic)

Clearly, movers haven’t completely shut up shop, but they are less active (in terms of market share) than is normally the case. This is likely to reflect the large amount of money required to trade up (not only to pay for potentially a larger/newer house, but also legal fees etc), already-high debt levels, and tight lending criteria at the banks. Indeed, some are clearly choosing to renovate rather than relocate, with Statistics NZ reporting high levels of consents at present for alterations & additions.

Tauranga movers: % by location of previous sale (Source: CoreLogic)

The reluctance of existing owner-occupiers to relocate is even more pronounced in Auckland, where movers’ market share of property purchases was only 22% in Q2, the lowest for more than 10 years. Is movers’ relative lack of action within Auckland explained by more of them selling up and actually shifting to other parts of the country?

Queenstown movers: % by location of previous sale (Source: CoreLogic)

Take Tauranga and Queenstown as examples. These are commonly believed to be hotspots for inbound Auckland movers, and in fact, they have been in the past. In Tauranga, Aucklanders’ share of mover transactions peaked at 31% in late 2016 (see the second chart), and peaked at 26% in Queenstown at a similar time (see the third chart). Since then, however, the importance of Aucklanders to overall mover activity in both these areas has faded away and in Q2 2019 was 11% in Tauranga and just 5% in Queenstown. The flipside is that locals have now returned to more than a 50% share of mover purchases in both areas.

Hamilton % of property purchases (Source: CoreLogic)

Now it’s important to reiterate that the focus of the above discussion is on movers. However, we can also look at the choices being made by Auckland investors (termed ‘multiple property owners’ in our data, or MPOs) and generally speaking, the same message applies here too – that they have been significant players outside Auckland in the past, but their market shares have faded lately. In Hamilton, for example, Auckland MPOs made 17% of purchases a few years ago, but this figure has now fallen back down to 7% (see the fourth chart). In Dunedin, currently one of NZ’s ‘hot’ markets with strongly rising property values, Auckland investors are only accounting for about 2% of purchases.

So in a nutshell, it’s not entirely a myth that Aucklanders can and do play significant roles in other areas’ property markets. However, their importance has certainly diminished in the past few years, with the weak market in Auckland itself no doubt denting confidence and prompting many to re-focus on their own ‘back yard’.



Technology automation.  It’s such a complex subject with enormous ethical and privacy questions, but at the same time it’s very easily become a natural part of our lives. We think nothing of using smart phones and watches, even robotic vacuum cleaners and voice-activated task managers such as Alexa or Google’s Assistant to make our lives ‘easier’. We embrace their ability to manage ourselves (a touch ironic perhaps): allowing them to monitor everything from our steps to our REM sleep. 

Meanwhile, the world around us is filling up with monitoring devices at staggering rates. There are over 4Million CCTV cameras in the UK: 500,000 of these are in London alone - in fact, the average Londoner is said to be caught on camera around 300 times a day.

How these cameras are being used and how much of your data is being collected (and stored) is a troubling question for many.  Clearly, policing benefits. The Chinese Government arrested an individual from a crowd of 60,000+ concert goers (Read here) using facial recognition technology. The same Government is also developing a program called ‘Sharp Eyes’ to collect hundreds of pieces of information about all citizens in order to create a social welfare ‘classification’.

The NZ Wellington City Council ran a smart city trial a couple of years ago using cameras and sensors which could detect the sound of broken glass, the smell of vomit and use something called ‘geofencing’ to monitor whether people were staying in an area too long, which may in turn suggest suspicious activity or someone in need of assistance.

Whilst the world’s data is rapidly growing, robots have also been moving out from the factory, with their automation abilities already applied in the healthcare and hospitality sectors. 

I recently listened to a BBC World interview where a surgeon spoke with marvel about how he had been able to operate on a patient in an ambulance 8,000 km’s away using robotics. He described it as like being able to reach his own arm across 1000’s of km’s to carry out the lifesaving surgery required.

With an ageing population set to balloon over the next two decades from being 15% of the population to around 23% we need to look at what automation means for the growing aged-care sector.  

Is the older generation ready for it?

The stereotype of older people struggling with technology isn’t supported by the stats, which speak of an increase in the use of smart phones and devices in the over 65’s category up to 78% up from 69% in just one year (source: Deloittes mobile consumer survey between 2016 to 2017). 

Of course, there’ll always be those who are too set in their ways to try something new. However, there are also many like my 88-year-old father in law. He no longer uses his landline to call us, having quickly understood the huge benefits of Skype or FaceTime to see his Grandchildren first-hand. The chance to experience more of their world from a whopping 12,000 miles away was immediately embraced. 

Smart phones and devices are one thing: but what about the next generation of technology? Is there a limit to the older demographic’s willingness to welcome in ‘new’? Certainly, the stats don’t lie. The older generation is already embracing our current version of ‘new’ and if they’re not already: their families will surely drive the speed of adoption of any new technologies as a way of interacting and keeping their aged relatives safe in their own homes for longer.

When considering what ‘could be’ in the tech landscape, we need to consider the speed at which new technologies could be entering our everyday lives. If the previous decades have been anything to go by: that pace will be hectic.  

  • Websites: the 1980s was a decade of much innovation but it didn’t have any websites. Not one. The web was invented in 1991 by Tim Burner Lee and today, there are now over 5 Billion websites, almost as many websites as there are people in the world.
  • Data Storage: 1 GB used to cost $100,000. Today’s price is 3cents and falling, allowing us to store huge amounts of data very cheaply.
  • Computing speed: In the 1980’s the world’s fastest computer was called the Cray-2 and it was run by scientists with PHD’s. The same computing power is now found in your 2006 Ipad2, which is usually run by a pre-schooler. 

Artificial Intelligence (AI) itself is nothing new: it has in fact been around since the 1980’s, (think robots in car manufacturing plants focussed on simple repetitive tasks done well). It’s the combination of cheap data and exponential computing power that’s enabling leaps and bounds in the use of AI in every aspect of our lives today, with enormous potential for the aged-care services industry. 

In our next feature in this ‘future tech and the aged-care sector’ series, I cover off in detail the future impact of smart home technology such as voice and video technology, robotics already in use overseas, and smart toilets. Yes, really: I do go there. I also review changes that could keep people in their own homes for longer - including automated vehicles and home monitoring. 

The final feature in this series goes into what the sharing economy could actually mean for homeownership: are we looking at a potential delay for entering retirement homes?


It was no surprise that today’s figures for Q2 from Stats NZ showed continued low levels of activity in NZ’s residential property market from foreign buyers. Waitemata in Central Auckland remains a key area that’s been impacted, alongside Queenstown.

CoreLogic Senior Property Economist Kelvin Davidson comments:

In the three months to June, there were 183 property purchases by people without citizenship or a residency visa, 933 fewer (-84%) than the same quarter last year. This was 0.5% of all purchases, down from 0.6% in Q1 2019 and 2.8% a year ago. At the same time, people without citizenship/residency sold 327 properties in Q2 (0.9% of all sales), resulting in a net change in ownership of -144.

So the latest figures were a not-surprising continuation of what we saw in Q1; that the Foreign Buyer Ban has fulfilled its aim of reducing the role of non-citizens/residents in the NZ residential property market. This is one factor for the restrained growth in property values that we’re seeing nationally.

In terms of the local area-level figures, however, they’ve become harder to get clear messages from. This is because as the number of foreign-related deals falls, confidentiality issues mean that more of the figures are withheld. Even so, the data still shows that Waitemata in Central Auckland has taken the lion’s share of the drop in foreign buying (down by 246 from a year ago), while Christchurch, Howick (Auckland), and Hamilton have also seen large percentage falls.

Queenstown-Lakes is another area that stands out for a significant drop in foreign buying, just at a time when construction also remains high (see our recent commentary on this here). In turn, these factors will have contributed to the fall in average property values that we’ve seen there of 2.2% in the past three months.

Property purchases by non-citizens/residents, Q2 2019 change from a year ago

Overall, given that Australians and Singaporeans are exempt from the ban (as well as other nationalities buying apartments in large-scale developments), there’ll always be some level of foreign buying in NZ. But recent quarters will have seen more openings in the market for non-foreign buyers than otherwise would have existed, and that will remain the case.