Falling market offers opportunities for investors

At a challenging time in the property market, a bigger adjustment in price than has been seen in the last two months is yet to come, according to Ray White Group chief executive Carey Smith.

Tuesday, March 18th 2008, 12:00AM

by The Landlord

However rather than seeing the softening underway as bad news, Smith says that whatever is happening in the market, someone will benefit.

While the Real Estate Institute reported the number of house sales hit a seven-year low in January, Smith says as long as New Zealand is considered a safe country, the property industry would always be terrific.

“We have one of the fastest-turnover property markets in the world – Kiwis are very thirsty for it, and a lot of wealth has built up in property, which will keep driving the market forward. People will move away from property only if the banks do, and banks prefer to lend for property over other investments because it’s less volatile.”

BNZ chief economist Tony Alexander is also upbeat, saying later this year people will start to buy again – motivated by fear of missing out. “This is an environment of opportunity.

“Stay close to canny investors – they’ll be setting themselves up in this phase.”

Alexander says buyers will come back in spring when inexperienced property investors have been weeded out.

Professional investors with 20 or 40 houses will be ahead of the spring buyers. Alexander says they’ll be buying about July.

Smith says the biggest issue for property investors at present is New Zealand’s interest rates, the highest in the OECD. “For people coming off five-year, or even two-year, fixed-interest rates, they’re facing an increase to 10% from 8% or less. In real terms, that’s a 20% increase in rates as they refinance, which puts real pressure on people who are marginally capped.”

New data shows a marked decrease in housing loans applications attributable to high interest rates following a series of hikes in the official cash rate in 2007, combined with decreasing rates of homeownership.

Smith expects to see people staying in rented accommodation for longer.

With the possibility of a proper slump, he expects a decrease in interest rates this year – due to election-year promises if nothing else. However, Alexander sees no prospect of rate cuts because of the inflation outlook.

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