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

NZ Super Invests in Christchurch

Friday, 27 September 2019

 

Christchurch's commercial property market continues to tick over. The latest research from Christchurch Cityscope indicates CBD sales over the past three months had a total value of $64.2 million  and $178 million for the previous twelve months.

Included in these latest sales is the BreakFree on Cashel in Christchurch Central, a seven-storey hotel which was converted from an office building in to a hotel in September 2007; further refurbishment work was undertaken in 2015 after sustaining damage in the February 2011 earthquake. Its facilities include a restaurant, onsite bar, cafe, gym and office and conference rooms.

Recently, NZ Super Fund has invested $300 million into a hotel investment venture which includes an investment in the Christchurch BreakFree. The super fund, partnering with Russell Group of companies and Lockwood Group, is to form a partnership to own three hotels, the others being Four Points by Sheraton and Adina Britomart, both in Auckland. The New Zealand Superannuation Fund is a sovereign wealth fund in New Zealand, created in 2001 to help prefund the future cost of the New Zealand Superannuation pension. The Russell Group is a family owned and operated group of companies originally established by the late Alf Russell back in 1965. It now employs over 900 people and focuses on construction and property ownership and management. Lockwood is also a private investment group.

Colliers International’s specialist hotel adviser, Dean Humphries, who played a key role in the negotiations said that the ‘$300m was the indicative value of the current portfolio’.

OCR on hold; mortgage lending stable too

Wednesday, 25 September 2019

Earlier today the Reserve Bank decided to keep the official cash rate unchanged at 1.0%, which in truth isn’t much of a surprise. Meanwhile, mortgage lending activity in August was pretty stable too, with owner-occupiers driving the market but investors more subdued. The LVR speed limits are seemingly having quite a strong effect on investors. However, there may be respite on the horizon, with a potential loosening of the rules in November.

CoreLogic Senior Property Economist Kelvin Davidson writes:

Official cash rate on hold at 1.0%, but watch for cut on November 13th…

The first key piece of news from the Reserve Bank (RBNZ) today was the decision to hold the official cash rate (OCR) unchanged at 1.0%, having surprised the markets by cutting it from 1.5% back on 7th August. Although you can never say never with this Governor and Committee, a cut was always unlikely today. However, with signs that general (CPI) price pressures are still pretty subdued and that the economy has perhaps lost a little momentum, there’s a decent chance that we’ll see a 0.75% OCR at the next meeting on 13th November.

Mortgage lending activity stable…

Hot on the heels of the OCR decision, the RBNZ has also just published the latest mortgage lending figures for August. The figures showed $5.4bn of lending last month, unchanged from a year earlier. That seems to have been a bit of ‘payback’ for a stronger month in July. Owner-occupiers are still driving activity, with investors more subdued (see the first chart).

Annual change in lending, $m (Source: RBNZ)

First home buyers are still recording the fastest growth in lending flows amongst owner-occupiers, but all others within that group are also just starting to show a tentative pick-up in the pace of growth (see the second chart). Generally speaking, the number of loans is still pretty flat, so the increases in the value of lending are being driven by larger average loans.

Annual change in lending, % in past 12 months compared to previous 12 months (Source: RBNZ)

In terms of the LVR speed limits, owner-occupier lending at <20% deposit is still running at 12-13% of activity, comfortably below the 20% speed limit (and even the self-imposed 15% that banks reportedly choose to adhere to). Yet with overall lending to owner-occupiers still growing, this suggests that most borrowers are able to find a sufficient deposit and the speed limit isn’t really a restraint at present. The story seems to be different for investors, however. Their overall borrowing activity is still pretty soft, and only about 1% of lending to investors is at less than a 30% deposit (see the third chart). This hints at a restraint from the speed limit, and hence could be a key group that would benefit from a potential loosening of the LVR rules in November (perhaps by raising their speed limit from 5% to 10%).

Proportion of lending at high LVRs (Source: RBNZ)

Overall, then, given that mortgage rates remain very low (and have even edged a bit lower over the past month or so), stable lending activity would be in line with expectations. Meanwhile, over the final week or two of August, the banks began to loosen their internal 7-8% serviceability tests, which will have given a little more impetus to borrowers – and there surely has to be a good chance that this will have continued in September (lending figures for this month due 24th October).

The key factor to keep in mind for 2020 is the looming, extra bank capital requirements and what that might mean for mortgage rates – potentially they may start to rise. As the fourth chart shows, the bulk of mortgages in NZ are on fixed rates, which will shelter borrowers for a period of time. But that clearly won’t be forever, and so market activity could well face some stronger headwinds later next year and into 2021.

Share of mortgages fixed and floating (Source: RBNZ)

Plenty of stats and numbers to cover this month as well as changes in bank serviceability criteria. And of course, what to make of the KiwiBuild reset.

The share of property purchases made by mortgaged investors has recently risen back to 26% nationally, the highest since just prior to the introduction of a 40% deposit for this group (LVR III in October 2016). Auckland has been a key part of the upturn from investors, even though this is where rental yields are lowest. Of course, when you consider that property values have fallen recently across Auckland (e.g. by about $36,500 from the peak in Auckland City central area), some investors are clearly sensing bargains.

CoreLogic Senior Property Economist Kelvin Davidson writes:

The key highlight from the latest CoreLogic Buyer Classification figures is the continued resurgence in market share for mortgaged multiple property owners (MPOs, or ‘investors’). Over July and August, they have accounted for 26% of residential property purchases across NZ, as shown in the first chart. This is the highest share since the third quarter of 2016 (28%), which was the zenith for investors before the Reserve Bank introduced the third round of LVRs and required a 40% deposit.

NZ % share of purchases (Source: CoreLogic)

The recent bounce-back for investors is evident around most of the main centres, including Hamilton, Tauranga, Christchurch and Dunedin (although first home buyers are still the big story in Wellington). But given that property prices are highest and gross rental yields are lowest in Auckland, the renaissance here is perhaps of most interest. As the second chart shows, mortgaged MPOs have increased their market share from 25% in the first six months of the year up to 28% now – and have again overtaken first home buyers (26%). It’s also still the MPO 2’s that are driving the upturn in Auckland, commonly known as ‘mum and dad’ investors (note that the third chart does not break down the data by mortgaged or cash).

Auckland % share of purchases (Source: CoreLogic)

 

Auckland % of purchases by multiple property owners by number of properties owned (Source: CoreLogic)

In addition, most parts of Auckland have contributed, including Manukau and Papakura (although Waitakere for example is still currently a pretty hot market for first home buyers). However, the biggest influence has come from the large Auckland City market, where the share for mortgaged investors has actually been rising since early last year (see the fourth chart), and has now hit 30%.

Auckland City (old territorial authority) % share of purchases (Source: CoreLogic)

At first glance, the rise in investor activity in Auckland may look surprising, given that gross rental yields across the super-city as a whole are pretty low (2.7% versus 3.3% nationally), and even lower in the Auckland City central area (2.2%). However, as we noted last month*, investor activity everywhere across the country will have received a boost from the scrapping of the capital gains tax proposals, and the low returns on offer from other assets (e.g. term deposits) may also be seeing some money re-diverted back towards property.

And then on top of that, an additional factor in Auckland specifically is that falling property values will also of course have grabbed the attention of some investors, looking to bag a potential bargain in a buyer’s market. In the Auckland City area, for example, average property values have dropped by 2.9% from their peak in June last year, equating to about $36,500. That’s likely to have been enough of a fall in price to make the economics stack up for some investors. Certainly, as we highlighted in our latest ‘Pain & Gain’ report**, apartments owned for less than three years in Auckland have recently been struggling when it comes to achieving resale profits, so this segment could be where some investors buying into the market in recent months have been sensing opportunities.

Bottom line, first home buyers have generally been the key group of interest for the past year or two. But this now seems to be changing slightly, and investors may well be the hot topic for 2020.

https://www.corelogic.co.nz/news/are-investors-starting-reassert-themselves-property-market
** https://www.corelogic.co.nz/news/pain-creeping-aucklands-property-resale-market

Although property sales volumes across Auckland as a whole have been low in recent years, some suburbs have been faster moving – these are mostly development areas (e.g. Hobsonville, Silverdale), and while the extra supply is raising turnover rates, it’s also dampening prices. Other parts of Auckland (e.g. Parnell, Orakei) have been much quieter, or in other words slow-movers. Generally, slow-moving areas have subdued price growth, but outside Auckland, Ngongotaha (Rotorua) and Wairoa break that rule of thumb. 


CoreLogic Senior Property Economist Kelvin Davidson writes:

An article that featured as part of last week’s Property Week on Oneroof covered the latest CoreLogic data on fast- and slow-moving suburbs across the country, highlighting areas that have had very short (and long) median selling periods over the past year: https://www.oneroof.co.nz/news/revealed-the-suburbs-where-homes-are-selling-the-fastest-36671

An additional measure that we regularly look at to judge the strength or weakness of a particular area is the turnover rate – i.e. total sales over the past year as a % of the total number of houses. So what’s this measure currently showing us*? Focusing in on the top 20 suburbs for turnover rate – i.e. the fast movers – four of the top five are in Auckland (see the first chart), with the other one being Pokeno (Waikato District). This is no surprise – given that these areas are seeing a lot of new development, you’d expect strong turnover rates as the new-builds are sold off.

Top 20 suburbs for turnover rate – sales past year as % of dwelling stock (Source: CoreLogic)

Similarly, there aren’t any real surprises amongst the rest of the top 20 either. For example, suburbs in Taupo, Tararua, Dunedin, and Invercargill all feature, and these are parts of the country that have been more buoyant in terms of demand and market activity lately, and especially for prices. Indeed, Pahiatua (Tararua), Strathern (Invercargill), South Dunedin, Mangakino (Taupo), and Georgetown (Inver.) have all seen double-digit growth in property values over the past year – see the second chart.

Annual % change in median value for top 20 fast-moving suburbs (Source: CoreLogic)

The second chart also highlights how a fast moving suburb doesn’t always have strong price growth. True, that does tend to be the rule of thumb. But in development areas in Kumeu, Hobsonville, Pokeno, Whenuapai, and Silverdale, the extra supply (which is boosting turnover rates) is actually weighing on property values.

Turning to the other end of the spectrum, Auckland features again, but this time for slow-moving suburbs. Sixteen of the 20 slowest moving suburbs over the past year are in Auckland, and include some of the pricier areas of the city, such as Parnell and Orakei (see the third chart). Given plenty of listings and choice for buyers, as well as affordability problems across many parts of Auckland, it stands to reason that sales activity and turnover rates have generally been low. Elsewhere, a couple of Rotorua suburbs have also been quiet, alongside Bromley (Christchurch) and Wairoa.

Bottom 20 suburbs for turnover rate – sales past year as % of dwelling stock (Source: CoreLogic)

However, just as a high turnover rate doesn’t necessarily mean strong price rises (e.g. Hobsonville, Silverdale), a low turnover rate is not always consistent with weak price growth. As the fourth chart shows, Ngongotaha (Rotorua) and Wairoa have had relatively low sales activity over the past year, but solid gains in median property values, especially in Wairoa (17.8%). In these cases, the lack of sales is reflecting restricted listings volumes and limited choice for buyers – in that environment, it’s not surprising that values are growing strongly.

Annual % change in median value for bottom 20 slow-moving suburbs (Source: CoreLogic)

* All suburbs shown here have at least 500 properties and at least 20 sales over the past year.