Is The Boom Back?

Olly Newland’s client newsletter June 2012

House Sales Rocket – Auctions All The Rage:
Is The Boom Back?

Real estate agents Barfoot and Thompson have just released their sale figures for May and the result is very encouraging.

Auckland Housing in May Enjoys Busiest Sales for a May in Nine Years

The Auckland housing market experienced its busiest May trading in nine years, with the average sales price increasing by 2.5% in a month to $582,285.

“The market showed no signs of the slow down that normally occurs as we approach winter” said Peter Thompson, Managing Director of Barfoot & Thompson.

“Sales for the month at 1165 were the highest in a May since 2003, and were 31% higher than for the same month last year, and up 55.3 percent on last month.”

Link: Barfoot & Thompson

Barfoot’s are Auckland’s biggest residential real estate agents by far, and similar reports are coming in from other agencies large and small. We appear to have the beginnings of a major upswing in prices and demand, after several years of flat-lining, or, in some areas/types of property, sliding back.

It’s NOT a boom yet, but we may not be far off at this rate. A boom has a prolonged and feel “solid” and it’s clearly not there yet. The signs are encouraging (if a boom is what you want!) These results, on top of the other indicators we’ve discussed, show there’s life in the broader real estate.

Of course this applies only to Auckland for the time being, but you can be certain that the effect will slowly but surely spread through the other main centres. As to be expected, not everywhere in the country is benefiting. Many smaller towns and cities are still mired in recession going nowhere.

But there are strong signals that there is more to come.

Find out what you should ask before bidding at auction

Interest Rates

One of the major signals is the fact that already low interest rates are continuing to fall rapildy. It wouldn’t surprise me if we eventually end up with the cash rate set by the Reserve Bank between 1%-2% and mortgage rates in the 3%-4% range.

With the troubles in Europe, and USA investors will continue to put money into NZ because of our stability and stronger banks. Governments around the world continue to print money out of thin air to try to deal with the GFC and European debt woes. These factors will push rates worldwide down further still and, barring unforeseen events, I am picking that rates will stay down for a long time yet.

Look at it this way: Lower interest rates are in effect a wage rise by other means, and a better way to prevent a cost/price spiral from forming. This in turn makes property investment more attractive.

We have seen this already with several commercial properties recently selling in Auckland for around the 4% yield mark, which was unheard of until now.

Just like residential, well-leased commercial properties are likely to surge in value in the near future. This does not make the headlines (although it should) but it is very news worthy nevertheless.

Where is the pressure coming from?

Some of the reasons:

  • Very little new construction of ‘affordable’ housing
  • A decade’s worth of houses lost through the leaky home crisis
  • The tragic earthquake in Christchurch that destroyed thousands of homes
  • The huge add-on costs of building new houses, not to mention GST and council fees
  • Immigrants from Asia and elsewhere who consider Auckland as a paradise for housing as compared to the overcrowded towns and cities they come from
  • Lower interest rates which allow greater borrowings.
  • Rising rents due to the shortage of housing and recent tax disincentives all of which act as major upward drivers of prices.

One of the traps for beginners is to regard the CV (Council Valuation) which is carried out for rating purposes, as an indicator of market price, and assume the property will sell for around that figure. As often as not, the end price bears little relation to the CV.

This can be caused by a number of factors such as major upgrades having been done since the last CV or the downward value of plaster-clad homes.

In my view, CVs are best ignored or if used, seen as a very rough guide only.

The Trouble With Auctions

One of the challenges facing buyers (and sellers) is dealing with the auction process. The problem with auctions is that no one knows where a price may end up.

Nothing is more frustrating than having done due diligence on a property, obtained prior approval for finance, gone to the trouble of a valuation and maybe a building report and then to see the property at auction sail well above your limit leaving you frustrated and out of pocket.

25 Questions you must ask BEFORE you bid at an auction.

The auction process is daunting for many, but there are ‘tricks of the trade’ and other knowledge which can be used to give you an advantage over other potential bidders and the auction ‘system’.

I have prepared a brief report in the form of a number of questions regarding auctions which are extremely important to understand. (See below.)

Before you approach an auction, you would do very well to read and understand the important points these questions raise. One could almost say that to not do so may be damaging to your financial health!

signed by Olly Newland

Olly Newland
June 2012
Newland Burling & Co Ltd
© 2012 Olly Newland. All rights reserved.

auction tips FREE Report

I have prepared a list of 25 Questions you must ask BEFORE you bid at an auction.
I will be happy to send it to you with my compliments.
Use the contact form at our website to request a copy.

As always, I welcome your feedback, comments and questions. If you wish to have personalised advice on your investments, do not hesitate to contact me. Please use this contact form or call me 0800 66 22 80.

©2012 All rights reserved.

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