Market Update by the Experts

Market Update by the Experts
19-Jul-2018 Mark Honeybone

Market Update by the Experts 

Last month I was at the Gilligan Rowe and Associates Leaders Event. It was a fantastic event with almost 500 investors attending and a ray of outstanding speakers presenting. People like Tony Alexander, Phil Twyford, Ashley Church, Hamish Firth, Matthew Gilligan, Kris Pedersen, Janet Xuccoa and others (even I) were amongst speakers. This event happens every 6 to 8 months and is a fantastic way to stay current in the market. It is worthwhile attending, and I recommend it to anyone interested in property.

Over the past year, there have been concerns about the property market and where it is at. People were wondering about what’s going to happen after the election, with new Government Policies, foreign buyers situation and so on. 

Well, this Leaders event gave me high confidence in the future of the market. Of course one should still be careful and have clear goals and plans, but something much more dramatic needs to happen to affect the market and for now, I feel we are safe.

Here are some points I took away from the event:

  • There will not be massive gains in the next few years. However, some isolated markets
    will still have that.
  • There are currently still massive opportunities in the property market.
  • Be careful about buying at the peak of some smaller markets. I’m not telling you not to buy, but make sure you’ll be OK if there is an adjustment of sorts happening. 
Below I wanted to share key factors of why these experts are confident about the market’s future. This column is supposed to be about strategies, but I have chosen to take a different angle on things this month. The way I see it is once you’re confident about the market, then you can learn strategies and be confident about implementing them.


Phil Twyford (Housing Minister)

  • Causes of housing shortage.
  • Infrastructure shortfall;
  • Council inefficiency;
  • Construction industry challenges;
  • Building supplies overpriced;
  • Tax settings encouraging speculation. 

Matthew Gilligan Predictions (Chartered Accountant and Property Developer)

  • Flat market for up to 5 years recovery 2023 (after this housing will start to look affordable again – the new normal);
  • Construction costs rising by 10% per annum. Auckland Council about to increase consent/Watercare costs by $10,000 per title further increasing cost to build;
  • Portfolio strategy: hold half cashflow assets (boarding houses, rent by room, flat conversions) and hold half a portfolio in developable assets (land-bank). 


 

 

 

Tony Alexander (BNZ Chief Economist)

  • Some reasons other than the obvious, for house price inflation.
  • Current household consists of two income earners giving households higher purchasing power;
  • The cost to build is now far higher. There have not been productivity gains in this field comparing to other sectors (cars for example);
  • Foreigners have made up a new cohort of buyers in NZ;
  • Baby boomers look at property investing, as they are unable to get a return on retirement savings from low-risk investments such as term deposits;
  • Changes in migration flows with increase in the 10 year rolling averaging over several decades. Auckland’s vibrant and diverse economy with NZ youth staying in the country;
  • More divorces where one household becomes two putting more pressure on demand;
  • An ageing population who are encouraged to remain living at home wherever possible to reduce demand on health services;
  • Older Kiwis keeping large homes to accommodate grandchildren during school holidays (when their parents work full time) rather than downsizing to smaller units;
  • Leaky buildings are taking stock out of the housing pool.


 

 

 

 

 

 

 

 

Tony’s Predictions for the Property Market

  • Mild interest rate will rise in 2-3 years and beyond;
  • A flat market for housing for the next 18-24 months;
  • Migration easing to circa 30,000 over 3-4 years;
  • Credit supply stays tight;
  • The economy will continue to do well, job growth;
  • House consents rising;
  • Construction industry struggling with labour shortage and materials monopoly;
  • Meanwhile, the housing shortage continues.