Northland Property Investors' Association

northland@nzpif.org.nz

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01-08-2010

Current market conditions favour investors

In my travels around the Property Investor Associations I have picked up on quite a few experienced members increasing their portfolios. In fact even some of the less experienced investors are learning to be counter cyclical from other members and either starting or expanding their investments.

This is in stark contrast to the vast majority of new or aspiring investors who have been put off by the many negative commentaries out there regarding property investment. Getting access to long term investment strategies is a real benefit of being a Property Investor Association member for aspiring investors.

The experienced investors I have been speaking to see the lack of interest in rental property from newbie investors as good because it means less competition. New investors often pay too much for a property and end up having to top up the rent considerably to pay all the outgoings. This is in the hope that conditions will improve and the property will show a positive return. Without proper planning this wait can be long and difficult.

While the recent budget announcements will add to the cost of providing rental property, already difficult through general cost increases, there is a general expectation of rental price rises. The NZPIF believes that rental price increases are necessary and will be undertaking activities to recognise and encourage this.

One project already underway is a Post Budget Survey that seeks to examine just how rental property owners are going to affected around the country. This information will be fed back to members and participants so they will have a better idea of how much they can expect to increase their rents by.

Another benefit of the survey is that the media are interested in this type of information and will likely publish the results. This is a great way to get information out to the general population that rental price increases are inevitable. It is particularly useful to specifically get non-PIA members aware that they should be monitoring their rental prices. If a significant proportion of owners do not increase their rents then it makes it harder for the rest.

Although other surveys have already indicated that the general population expect rental prices to rise, it is important that tenants specifically are made aware of this. If your tenants are aware that rental prices are going to rise and have an idea of why and by how much, it makes the task of actually informing them so much easier.

For all these reasons I’d encourage you to take a few minutes and complete the short survey. It is conveniently on-line, with a link that pop’s up as you enter the NZPIF website at www.NZPIF.org.nz. The more people who complete the survey the better information we can get back to you.

While the expectations of rental price rises is one of the reasons why discussions at PIA meetings are around buying more rentals, there is still a reasonable level of caution. The members I have spoken to are either looking for properties that are showing a positive cashflow or ones where they can create a better return.

Different strategies to achieve this are being discussed, such as adding value or increasing the rental return. Options include:

  • Renting the property room by room.
  • Change the layout of the property, such as a 3 bedroom /2 living to a 4 bedroom/1living
  • They may add a sleepout.
  • They may sell a piece of the land to a neighbour or subdivide and sell a section.

I don’t hear of any investors buying for capital gain yet, but there is an expectation that properties in many parts of the country are still dropping in price. It is a buyers market and that is what appears to be attracting certain investors.

While it appears to be a buyers market in most parts of the country, most sellers are not in a position where they have to sell and are forced to sell properties at less than they paid for them. It may still take some effort to seek out those real bargains, but at least they are there.

A note of caution for property investors who are getting back into purchasing properties having been out of the market for a few years. The lending criterion of financial institutions has changed. Don’t take it for granted that you will readily obtain a mortgage because you have a lot of equity in your portfolio or you have previously had a good relationship with your lender. Let them know that you are in buying mode again and ask if they are willing to lend to you.

It is a prudent time to remember that ANZ is the major sponsor of NZPIF and they value the professionalism of our members when considering mortgages. Talk to your local association about the amazing deals on lending that the ANZ are offering PIA members. The savings are tremendous.

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