[Shana F]

Is it in a massive slump like North America (and apparently UK)? How are the interest rates?

We had planned to invest the money from the sale of our house and simply rent for a year or so until the American dollar gets stronger (assuming it does ...) so we could make a more substantial down payment in Kiwi dollars. I'm trying to decide if this is still a good strategy or if 2008 is the time to buy.

Any thoughts are appreciated.

[Nick88]

The NZ market has been continuing to rise just lately, but I think a correction is overdue. It might not be the sort of slump that you are enjoying in the US & UK, but may just be a very long flat period.

Not sure what the dollar will do. The NZ$ is really really strong at the moment due to the high interest rates (home loans about 10%, savings about 8% - roughly). I wouldn't like to say the US$ will improve against the NZ$ in the near future, countries like China are starting to use the Euro to hold foreign currency reserves.

I would definitely rent for a while and wait to see what the market will do here, you will not see big capital gains like we have had recently again for some time. Renting is cheaper than buying at the moment, anyway.

[BkyMonster]

Hmm interesting.
We'll probably be bringing our money over to Kiwi dollars sooner rather than later as I don't expect the US$ to get any better in general until late 2008 if even then. I can only hope the NZD gets adjusted like it was several months ago to something favorable for exchange (:laugh) or at least that USD/NZD doesn't get any closer to parity.:wah

[gonzo]

Hi there,

Have to agree with Nick, reports suggest that prices are still holding up but that sales volumes have fallen sharply. Disposable incomes are under pressure as a result of high food price and fuel inflation (same everywhere I suppose). However employment levels remain high with even the suggestion that everyone who wants a job has got one and additionally there are likely to be tax cuts ahead of the next election so that might balance things out a little.
No idea where the US dollar is going against the kiwi, those japanese housewives exchanging yen for the kiwi seem to be in control still so you might have a long wait if you are waiting for the US dollar to strengthen. Other comment that I would make is that I am still not convinced that it is cheaper to rent than purchase property as the tax on the income earned on the money distorts the return particularly for high rate tax payers. However clearly makes sense to rent until you know the areas you want to live in and where you will be in NZ for the long term should you stay that long :laugh
You probably need to be aware that the Kiwis love property as the alternative investments available in finance companies and the stock market have carried and in the case of finance companies continue to carry people out and there are still significant tax benefits available for residential property investment. The only additional comment I will make is that relative to the US and the UK the income/house price ratio in NZ is amazingly high and without the favourable tax treatment available for owning second or third homes (still very prevalent) is in my opinion unsustainable in the longer term.

[bob_the_engineer]

I’ve been looking at the NZ housing market for months, a couple of points you need to know.

Every other kiwi seems to own multiple houses, nobody in this situation will advertise the fact that the prices are falling because yes you get good tax breaks, but you need a capital gain to make it work for you. (rents won’t cover loan repayments on houses)

The advertised price is a long long way away from the actual purchase price. If you’re a foreigner, in a market you don’t understand, there is a very good chance you’ll get overcharged. You need a good real estate agent, there are some,, but they are few and far between.

If I were starting again I’d willingly pay an independent estate agent to act as advisor for me when buying. I haven’t seen this done, but I’m sure there are agents on the forum who would accept the opportunity.

Are house prices falling, quite honestly the answer is yes, and rather dramatically too, fundamentally I believe this is because of the high interest rates.

I’m on the ground, in the market, not a property investor, I own a house, I have nothing to gain or lose. Prices up or down,, it makes no difference to me. I sell for less I buy for less, to me a house is just something you live in.

The best strategy is buy carefully, never tell an agent that you’re buying from that you just landed in the country (their not all rip off artists, but some are!) and put the biggest cash deposit down that you can.

Good luck with your plans,, Bob

[akp713]

Yes I wouldn't expect the US$ to rise anywhere in the near future. The fed is predicted to cut interest rates again in December and that means the dollar will fall immediately. We will continue to pay a US$30 premium on a barrel of oil as long as there is fear of war with Iran, which won't be going away soon. I've heard prediction that gas will hit US$4/gallon next summer. Also many are now saying the US is already in a recession and housing prices here are expected to fall 10% next year.

Keep in mind the US dollar hasn't really gained in the NZ dollar in years, at least not since the Iraq War began. So chances are it won't recover anytime in 2008 either.

[Nick88]

Other comment that I would make is that I am still not convinced that it is cheaper to rent than purchase property as the tax on the income earned on the money distorts the return particularly for high rate tax payers.

Sorry Gonzo, you lost me there. Are you referring to MIRAS?

[ourquest]

A good trend to look out for in any market is the proportion of buyers to sellers. When a market has an excess of buyers then it is bouyant, and prices rise. If the number of sellers increases proportionally (as it always will in a bouyant market) then a point is reached where it becomes a buyers market. This is characterised by an oversupply of houses on the market. Agents will tell you that prices are still strong, but in such a market sellers have to lower their prices to make their property attractive enough to appeal to the limited number of buyers. Viewed as a whole this represents the end of a boom cycle and the proverbial "bursting" of the bubble to a moderate degree anyway.

Practically: have a look at the following indicators:
- Are there more properties being advertised for sale than there were some time ago?
- Are adverts showing price reductions becoming more common?
- Are there national events which would put off investors, ie interest rates hikes, new financial legislation, changes in tenant laws?
- If there are open home days/showhouses, are many possible buyers attending them?
- While looking at houses with agents don't be afraid to ask probing questions, a good one is "gee it must be difficult to make a living with the market the way it is and so many agents competing for the same buyers?"...this type of approach often gets a more honest answer than "is the market strong?".
- What is the media saying about trends? Bear in mind they obtain their comment from agents who have a vested interest in giving the impression of bouyancy.

Everyone wants to time the market correctly when they buy an investment, but the most astute people realise that any price you pay now for property is likely to seem very cheap in twenty years' time.

Do try at least to pay a correct market price, though, and always one which you can genuinely afford to service the mortgage of.

[migratory birds]

Just returned from NZ and was stunned by the extraordinarily high housing prices (and creeping up quickly in Dunedin where I expected to find reasonably priced housing). Word was that housing prices are expected to level off in several areas, dropping only 2-3% in others, but no significant declines are expected.

And what one gets for $300-400,000 (a cold house with no insulation, single pane windows and lots of renovation to look forward to) left me feeling the best route may be to buy a section and build.

[Piper]

Here's something I stumbled upon today - not to put too fine a point upon it, I would definitely be thinking of renting at the moment...

http://www.rgemonitor.com/blog/economonitor/229134/

(Very long-winded but insightful, although I wouldn't take the advice of the comment that says 'LEAVE NZ NOW' :D )

It just doesn't make sense to me that property can cost, for example, 10x people's earnings when a lender will only lend you 3x... And that same thought applies to the UK too, in my opinion. So, having to sell a property here is equally trepidationful (if there is such a word!!)

But that's just my 'simple' view of things.... :rolleyes:

Edited to mention that in case you always wondered about those property auction results, here's a recent example courtesy of an NZ property investor forum:

Barfoot and Thompsons morning auction results 21st November 2007 (14 properties)
2 sold . 6 passed in. 6 no bids

(1) 45a Comins Rd Mission Bay sold $725,000
(2) 5 Croydon Rd Remuera passed in
(3) 18a Lillington rd Remuera passed in
(4) 2/81 Allum St Kohi. no bids
(5) 136 Kohi Rd sold $775,000
(6) 1/12 Modena Ave G'dowie no bids
(7) 59 Murdoch rd Grey Lynn passed in
(8 ) 5/69 Selwyn Ave M'Bay passed in
(9) 12 McPherson St Meadowbank passed in
(10) 28 Codrington Cresc M'bay no bids
(11) 2 Augustus Tce Parnell no bids
(12) 11 Ingram Rd Remuera passed in
(13) 16 Kildare Ave Glendowie no bids
(14) 9 Dempsey St Remeura no bids

[migratory birds]

What does "passed in" mean on the above auction outcomes?

[boatieman]

Just to second that, Every other house in Tauranga has a for sale sign. There seems to be a real glut. A real estate friend of mine suggests that peoples expectations are far too high, and they need to be more realistic by lowering their prices. Houses between, $350 to $450, are moving faster, but not necessarily fast.
Many houses going to auction, at great expense to the vendor, but not selling.

Supply is exceeding demand

There are over 200 real estate agents in the area and the average houses sold per month is @ 60.

Still can't really understand how average Kiwi can afford mortgage or house when average wage is $38000?.

Cost of renting is going up at a rate of 6%, per annum as there is a shortage of decent rental property.

As regards building, That is expensive at the moment, especially if you want a decently built home with insulation, and possibly DG, as building costs have soared as builders get on the band wagon. It is imo cheaper to buy than build.

If you want to keep an eye on the market qv.co.nz can help.

[Piper]

What does "passed in" mean on the above auction outcomes?

I'm not sure, I am assuming it to mean something like 'reserve not met' because it's clearly not a sale.

As boatieman says, it's the seller who pays the advertising costs upfront before the auction so I guess it's less risk to the estate agents. Not sure how they can persuade so many vendors to do that when it obviously ain't working.

My personal thoughts as to how people can afford mortgages in NZ on their income is pretty much the same as they can here - I reckon most property is owned by people who bought ages ago and don't have huge mortgages.

It's the first time buyers and young people who are stuck out in the cold though and seem to have very little chance of getting onto the housing ladder right now.

I'm not sure how long the property market survives traditionally without them but I've seen somewhere that it will take at least 8 years of stagnant prices before first time buyers can get in at a reasonable level.

[Super_BQ]

I’m on the ground, in the market, not a property investor, I own a house, I have nothing to gain or lose. Prices up or down,, it makes no difference to me. I sell for less I buy for less, to me a house is just something you live in.


Bob. I wished more people in NZ thought like you. Because there are so many investors in the NZ housing market, so much is at stake that no single investor would want to sell their property for less than what they purchased them for. If you take away those people who tout buying real estate as the be all end all of investing, then perhaps we can expect NZ housing prices to be more affordable for pretty much all people.

I'm in the camp that houses should not be a vehicle for profiteering and that the NZ gov't should impose a capital gains tax on those who hold MORE THAN 1 property - no exceptions (if they flip the house in 1 or 2 years or wait to sell in 10 or 20 years). As for the prinicipal residence for the single home owner, they can sell tax free.

Less we forget that everyone needs a roof over their head.

Whether new or old house, buying a section in hopes of building a new house cheaper than existing houses is wishful thinking. Either the location is not right and the section of the land is incredibly cheap, the major concern is the cost of NZ's new building regulation and rising material cost & labour.

Many view the drop in housing prices in the US as a bad thing. I think it's all healthy because a 30% drop in some areas means affordability for those who are on the low income scale. Wishful thinking that this will ever happen in NZ.

BQ

[Piper]

Bob. I wished more people in NZ thought like you. Because there are so many investors in the NZ housing market, so much is at stake that no single investor would want to sell their property for less than what they purchased them for. If you take away those people who tout buying real estate as the be all end all of investing, then perhaps we can expect NZ housing prices to be more affordable for pretty much all people.

I'm in the camp that houses should not be a vehicle for profiteering and that the NZ gov't should impose a capital gains tax on those who hold MORE THAN 1 property - no exceptions (if they flip the house in 1 or 2 years or wait to sell in 10 or 20 years). As for the prinicipal residence for the single home owner, they can sell tax free.

Less we forget that everyone needs a roof over their head.


BQ

I agree, BQ.

The property investor's forum I was looking at had some quite distasteful characters on it - people who gloated about providing a roof over the heads of 'the poor scum' and making money out of it. YUK. :mad:

But they might just get to watch the 'scum' float to the surface and off into the distance while they're getting burned, if their property values decline. :yes

[Nick88]

Technically there is capital gains tax on rental properties, but the IRD turns a blind eye to it (wish they did with my business!!). They do this to encourage (due to political pressure from above) more properties to be used as rentals, that way the govt doesn't have to spend money doing it.

Perhaps if they didn't plunder the economy to the extent of $11bn a year more than they needed, those people at the lower end of the pay scale would be able to afford a home.

Brilliant link, Piper, thanks for adding that. One of the first comments is by Owen McShane, whose opinions I hold in very high regard. The main engine driving prices up is councils adding to the cost of subdividing, the cost of labour and materials for a house has gone up a bit (mostly due to legislative changes) but only slightly above inflation when compared like for like. Labour will have gone up because a carpenter can earn 25-30% more and pay less tax in Aus.

[ruthyroo]

FWIW I noticed when we first arrived 3 years ago that virtually every property was being advertised as an Auction or Tender. Now many, many more properties are being advertised at an asking price - and only the really flash looking ones are still being auctioned.

Re. kiwis on average salary being able to afford sky high prices. I would suspect that Joe Bloggs Kiwi on average income (especially young people) cannot afford to buy just now - the higher prices are being paid by immigrants with lots of GBP / USD / whatever to spend, kiwis who have already paid off their own mortgages and looking to invest in more property, and professional property investors both from NZ and overseas.

[Pip]

we've only had limited house buying experience in NZ but did find that houses that go to auction, rarely seem to sell at auction. Interestingly enough, we went to one out of curiousity where the advertising said buyers budget over $450K, - the bidding got to $600 and the owners still weren't happy and the house wasn't sold. I sometimes wonder if people who choose to sell at auction have unrealistic expectations and are hoping they might have a bidding war on the day.

At the risk of being controversial, sometimes I get the impression that some sellers here work out how much money they need (e.g for their next house or whatever) and price the property based on that, as opposed to marketing it at the going market rate is. certainly some pricing seems a little random and I've been shown virtually identical houses in similar locations at very different prices.

We decided to ignore all auction properties and only looked at houses with advertised prices and after that life was quite straight forward. We also paid $450 dollars to QV to have a detailed independent valuation done to ensure that we weren't paying over the odds (which we weren't), so it was worth the outlay for the peace of mind.

[markw55]

What does "passed in" mean on the above auction outcomes?

Passed in just means the property didn't meet its reserve price.

NZers obsession with property is interesting and it is true that almost everyone over 45 seems to have at least the house they live in and one rental. I read somewhere that one third of all nz house owners also have a rental property.

But there are reasons why everyone does this - in NZ there have traditionally been very few ways to wealth and property ownership is right up there. Unlike countries with bigger economies not many kiwis get rich through business ownership - some do, lots don't. Likewise NZ shares have not done well in comparison to overseas markets. Until recently you had to be a quite sophisticated investor to be able to access overseas markets but NZ has a strong tradition of home ownership and second home (bach) holiday ownership. Kiwis feel that they know and can trust property as an investment whereas other investment forms seem to end in disaster - the 1987 sharemarket crash, the 2007 finance company bankruptcies, etc.