Will The Property Market Get The Speed Wobbles? Seven Reasons why the Property market may get the speed wobbles this year Over the next few months much heat and light will be generated by the politicians from all sides and as usual the truth will be lost in the fog of battle. It should as no surprise then, of the property market ( and other markets as well) get a serious dose of the wobbles especially if the polls remain tight. Investors, who can keep there calm can do very well in these times, as those who panic may well offer up bargains. Remember the GFC where the stock markets tanked to levels not seen in decades? The canny investors who bought then have made a killing, and so it could be for our canny investors in the months to come. Here are some of topics that will worry the market as we head towards the elections and the aftermath: (1) Will interest rates go up, stay steady or maybe go down? The Reserve Bank has made it clear that there is more pain to come with higher interest rates promised very soon. This may well end up with the building industry stalling in its tracks. On the one side we have those demanding more affordable houses while on the other side the goal posts as shifted by increases in interest rates. First home buyers or those wishing to build or buy a new house may well cancel the idea when they calculate the interest they may be paying on their mortgage. The result could shake the building industry, which in turn runs down through the suppliers, trades people and even the workers whose jobs get cut. making the market even more nervous. link: interest.co.nz/news/68927/live-streamed-video-rbnz-press-conference-governor-graeme-wheeler (2) Immigration is on the rise. Once again we have the various factions demanding either full controls on immigrants, or an open door policy or something in between. The number of immigrants expected to arrive over the next 12 months could be well over 40,000, a complete reversal of what was happening only 2 or 3 years ago. These immigrants will require around 13,000 houses extra on top of the 30,000 odd thousand we are short of already. What makes it hard to calculate is whether the immigrants are ex-pat Kiwis returning home, overseas families uniting with family here, or just plain immigrants looking for a better life. Popular belief thinks that Asians are the main source of immigrants when in fact most immigrants come from Australia, Europe, and the UK. Whatever the truth is, the immigrant push will pressure house prices upwards as the majority of immigrants are unlikely to be poor. Any control, or threat if control could have people considering immigration to New Zealand more quickly so as wet here before the door gets shut. If this occurs the calls for curbs will get louder leading to confusion in the market on whether to buy now or wait.  link: stuff.co.nz/national/politics/9992233/Immigration-controls-to-dampen-house-prices (3) The Reserve Bank LVR regulations These rules require people to have 20% deposit before being able to buy a home and has been spectacularly successful to date in cutting out swathes of first home buyers. It has put upward pressure on rents, and skewed the statistics towards an apparent lift in house prices as the affordable ( i.e. cheap) end of the market takes a hit. As the months pass the issue will become hotter and hotter as many see this rule as hurting the very people who need a leg up onto the property ladder. We now have the bizarre situation where a young couple, setting up a home can go to and rack up tens of thousands of dollars of debt on no-deposit motor vehicles, or no-deposit, no-interest, no-payments for 12 months for household goods, appliances and furnishings. All of these will be nigh on worthless 12 months later-but they can’t buy a house to put them in that will at least hold its value and make for happier families. The heat and light the LVR rules have already generated will confuse the market even further over the months ahead. Already there have been stories of young people forced out of the market by what seems unfair treatment and no doubt more of these stories will emerge in the near future. link: stuff.co.nz/taranaki-daily-news/lifestyle/9991765/A-place-to-call-home (4) The introduction of a Capital Gains Tax This is being heavily promoted by the Left and will be big issue as it is being touted as the means by which property speculation will be curbed and house prices lowered. The mantra has been picked up by some respectable economists, few if any of which have ever owned investment property in their lives. The fact that many other countries have a Capital Gains Tax has not stopped those countries having spectacular property bubbles despite the tax. At this moment Sydney is experiencing one of it biggest house price bubbles and the usual clap trap of an imminent bursting of the bubble are being forecast by the same types of academics as here: link: smh.au/business/the-economy/housing-bubble-fears-property-prices-could-fall-10-to-20-per-cent-20140331-35sg7.html In the USA prices are firming rapidly despite the big downturn they had some years ago (caused solely by toxic mortgage securities) And that country has an array of eye watering capital gains tax regimes. England to is in the midst if a “Super Bubble” with prices rising 20% on an annual basis and it too has harsh Capital Gains restrictions but that hasn’t stopped anything. link: theguardian/money/2014/apr/15/uk-house-prices-february-rise For any such tax to work it must apply to all property, private and investment or not at all. Over 80% of the market consists of private sales So trying to control a small part of the market while the rest of the market goes free is futile. The fact the speculators are already taxed seems to have been over looked in the reasoning why such a tax would be needed. For some reason- no doubt political- only the property market has been singled out to be punished by such a tax. What hasn’t been pushed is the fact that any capital gains tax would also apply to the sale of shares, inherited property, the sale of businesses, farms and even on any part of your home should it be used for business purposes. I have written before on this topic and invite readers to refresh their memories here: ollynewland.co.nz/a-capital-gains-will-tax-more-than-just-property-speculators/6223/ Read the policy here: r.search.yahoo/_ylt=AwrSbmV1y3pTSRoAZyzzZgx.;_ylu=X3oDMTByaDNhc2JxBHNlYwNzcgRwb3MDMQRjb2xvA2dxMQR2dGlkAw--/RV=2/RE=1400585206/RO=10/RU=https%3a%2f%2flabour.org.nz%2fsites%2fdefault%2ffiles%2fCGTWebdoct%2520July%25202011.pdf/RK=0/RS=PZMwPRsWf_0uho4el4x0DjkIwMU- What is also interesting is the notion of “grandfathering” assets such as property which means that assets purchased or held before the enactment of a CGT will not be taxed while those purchased after enacted will be taxed. When this becomes well know it is likely there will be a rush of buyers into the market to “grandfather” as many assets as possible before it is too late. What that will do to the market can be imagined. (5) Politics: As the elections approach, and the various political parties ramp up their promises and threats, it is very likely that the residential property market may experience some serious wobbles. Prices could rise and fall, statistics may go all over the place and commentators from the Left and Right will be pushing biased agendas so as to influence voters. And they will have plenty of agenda to push. Every Poll which shows this or that party making gains or losses will add to the wobbles. The influences that now push and tug the market this way and that, give the different factions more opportunity to create uncertainty and confusion as we head towards the polls. (6) WOF for Rentals Recently a report came out that stated that the vast majority of rental homes were not up to standard, and straightaway the call is for regulation and warrants of fitness for private rentals was called for. Apart from slum landlords which deserve a thrashing, any upgrading of rental homes will be a cost on the landlords and must push up rents. How to decide why this or that property would fail its WOF is still a mystery and begs the question that of a rental home is no longer up to standard, may the Local Council should bear the cost, as it was they had signed the property off as fit for habitation at some time in the past. (Shades of leaky homes) This subject will no doubt be raised again in the near future as a part of the whole “Housing Crisis” debates so it will add another layer of stress onto the investment market. link: stuff.co.nz/life-style/home-property/10047615/Rentals-across-NZ-fail-warrant-of-fitness (7) The Likelihood of Rents Rising As interest rates rise and the rhetoric gets louder many investors will be looking hard at their rents and be raising them at the first opportunity. The thinking will be “if there will be a capital gains tax, plus higher interest rates, plus a WOF regime then I might as well get a return from the property that makes it worthwhile to keep it” The very well informed New Zealand Property Investors Federation executive officer Andrew King summed it up nicely in this article which was – as is usual- buried in yet another “shock horror” headline. link: stuff.co.nz/national/politics/10062393/Overvalued-houses-could-force-rents-up The growth in value may still continue, but the vast majority of investors will not sell if they face taxes and other punishments. Rents have lagged behind property values for year and and a catch-up is due any time soon. The catalyst could well be the unholy brew of higher interest plus all the other factors outlined above. Should rents rise you can just see the clamour from the Left with calls for yet more controls and regulations to be imposed on the “rack-renters” which will put even more pressure on landlords to “get in” before the axe falls. Is there is a housing shortage at all what is what is driving all the arguments? It is this constant drum beat that there is a “crisis” that is whipping the screamers into hysterics. In actual fact there is no shortage of houses in Auckland or the rest if the country for that matter - with parts of Christchurch maybe being the exception. For the record there are over 1500 2-3 bedroom houses for sale on Trademe under an affordable $400K in the greater Auckland area today. These would house up to 5000 people immediately. This excludes apartments, units, sections or listings on other websites. And –wait for it- there are another 25,000 more such houses for sale throughout the country. So the two questions that need to be asked are: What shortage and why the fuss? Olly Newland May 2014
Posted on: Tue, 20 May 2014 03:56:50 +0000
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