Along with Reserve Bank governor Allan Bollard, fund managers Binu Paul and Brian Gaynor, Olly is part of a NZ Listener feature ‘On the Money: How to make the most of the current investment climate.’
What follows is the section quotes Olly.
On the money
by Karyn Scherer | NZ Listener | Published on May 24, 2012 | Issue 3759
How to make the most of the current investment climate.
Veteran Property Guru
Olly Newland has been a professional property investor for more than 40 years and is the author of six books on the subject. He has also been involved in public and private investment companies.
Economy: “All this cost-cutting stuff is counterproductive. As we’ve seen in Europe, you’ve got a revolt against austerity, which sounds great until you try it. It doesn’t actually solve the problem – it makes it worse. It’s back
to the Muldoon days of spend and hope.”
Property: The Real Estate Institute’s statistics don’t lie: nationally, house prices are still 1.4% below what they were at their peak in 2007. In real terms (once infl ation is taken into account) they are much lower. But beneath the statistics is considerable variation across the country. Some provincial areas remain in the doldrums, while Auckland and Christchurch appear to be bouncing back. Although it’s common for homes in Auckland’s eastern suburbs to sell for more than $1 million these days, most of the action seems to be in the lower end of the market. The less-flash suburbs have a shortage of cheaper homes, largely because very little building is taking place. Newland blames an increase in GST, leaky-home problems, and local government charges that have developers moaning about not being able to make sufficient profit.
At the same time, money has never been cheaper, he notes. “Interest rates are half what they were before, so effectively you can double what you borrowed before. Every time they talk about interest rate rises, it gets further and further away.” Auctions are becoming increasingly popular in Auckland, and in the top suburbs more than half of all sales are a result of auctions. Newland says most auctions he’s attended in the past fortnight have been standing room only. “That tells me there is something going on. There are people climbing over each other’s shoulders to get into affordable housing because there’s so little of it around, unless you want to get into cheap boxes.”
He knows of one person who recently sold a house in the Auckland suburb of Blockhouse Bay for $690,000, which he had expected to go for not much more than $550,000. And there are plenty more anecdotes like that. Part of the reason for the rise in demand is people moving from Christchurch to Auckland, he believes. “We’re ‘lucky’ that so many people are emigrating to Australia, because it’s taking the pressure off, but they don’t necessarily leave a house behind. Rents are going up, of course, for the same reasons.”
But it’s a different story in the rest of the country. “In places like Rotorua it’s still pretty quiet.” According to the Real Estate Institute, prices in Wellington are still 5% below their 2007 peak, and elsewhere in the North Island prices are down nearly 9%. Section prices are down nearly 12%. In real terms, that’s a significant drop. Newland believes it’s a great time to get into the Auckland property market, provided you have a long-term view. “If you buy where every body else is buying, you can’t go wrong,” he says. He agrees that changes to the depreciation rules and other tweaks have dissuaded some investors. But mostly, he believes, the clampdown has simply pushed up rents, as landlords have raised their prices to maintain their returns.
“I think as far as the Reserve Bank is concerned, Dr Bollard is jawboning. He’s trying to prevent any bubble forming, which is fair enough. Real estate agents and banks and so on are all doing the political stuff, but you only have to go to the auctions and look at the statistics and you will see that people are saying: ‘Fine, I’m getting on with it anyway.’
“With the GFC and the collapse of finance companies, people are saying they want something they can have total control of, that they can see, that will provide some income and perhaps some capital growth over time. They’re nervous.” Many investors are also tired of waiting for the global economy to come right, he says. “There comes a point where you’ve got to go or you just sit staring at the walls doing nothing. It’s as good as any other time if you’ve got the long view and you’re careful and cautious and do all the right checks.” The best buys right now are Auckland apartments, says Newland, provided they’re weathertight and not too small. “They were crazily overpriced for a while, and now they’re crazily cheap. You can’t build them for that. If I had the time and the inclination I’d buy every cheap, good apartment in Auckland.”
Fixed interest: Newland is convinced mortgage rates will remain low for a lot longer yet. “They might tweak them up a quarter of a percent, but if they went back up to where they were four years ago, half of New Zealand would be in the street … I think we’re in for a very, very long term of low interest rates, unless inflation comes. But if inflation bursts out around the world as people get fed up with being austere, and they start printing extra money to get the wheels going again, then all bets are off.”
Read the full feature online at NZ Listener