This year is going to be a bumpy ride for property investors.
Tuesday, January 24th 2023, 11:30AM
While the property market downturn may have shown subtle signs of easing late last year with a final quarterly drop of -2.1%, a potential recession and more official cash rate rises on the horizon signal further falls may be on the way.
CoreLogic’s latest Property Market and Economic Update shows last year’s fourth quarter drop in home values was the smallest decline since May 2022 (-0.9%) on the back of the monthly national fall easing to -0.2% in December.
However, CoreLogic chief property economist Kelvin Davidson warns it is too soon to conclude the easing in the housing downturn will last. “In the final few months of last year, buyers and sellers made it clear they were not in a rush to complete property transactions.”
He says politics will also be worth watching and the now-confirmed General Election in October could drive some uncertainty and a temporary pull-back for sales activity around that time. “Some investors will no doubt be hoping for a new National-led
Government, and a reinstatement of interest deductibility, but nothing is guaranteed in politics.
“Overall, we suspect sales volumes will remain fairly low this year and a fall in values of perhaps another 5-10%, taking the total drop from the peak to around -20%. However, the weakness in volumes and values may not necessarily extend throughout the entire year and if mortgage rates genuinely peak by the middle of the year this could lead to a pick-up in buyer positivity and possibly an increase in sales, which tends to bring price falls to an end.”
While many investors have pulled back, the Auckland Property Investors Association (APIA) asked successful investors what they planned to do this year to grow and nurture their portfolios over the next 12 months.
Here is what they had to say:
Waikato Property Investors Association president and NZPIF’s 2022 Landlord of the Year Natasha Middleton says she is all about the best bang for my buck next year. “So, I will put myself out there to learn and investigate strategies (such as renovations, cabins, developments, relocatables and even boarding houses). I will also start looking to buy for the medium term with the view to selling in five years. That’s a deviation from my tried-and-true buy-and-hold-forever strategy. It’s daunting, but I’m excited.”
APIA member Peter Lin says he is going to be strategic about scooping up high cashflow properties by targeting mortgagee sales. “I’m from the grey generation so there is a lot to learn about how to use databases such as Property Guru and the PPSR to my advantage. If I keep at it, I am sure I will pick up some smart purchases from the second quarter of the year.”
APIA board member Tim Munro says with the recent legislative changes against property investors potentially reducing the number of people investing in property but the more intensive property zonings allowing sub-division to smaller section sizes, we will be reviewing the potential to sub-divide our home and income properties, thus adding value and increasing the range of potential buyers. Not that we have any plans to sell.
APIA member and owner of The PM Co Karen Withers says she will most definitely be budgeting for two weeks of vacancy on average annually into rental equations and encouraging clients to do the same. “With the economic uncertainty, exiting Kiwis on top of the automatic rolling of fixed-term tenancies onto periodic ones, it will be harder to maintain the historic 100% vacancies of the past.”
APIA member Max Hall says he was really inspired by Matthew Ryan’s talk at APIA about multiplying your income streams on one single piece of land. “I’ve spent years buying and holding properties without doing much to any of them. That’s all going to change next year when I explore building and development opportunities under the Unitary Plan.”
Property consultant, commentator and owner of iFindProperty Nick Gentle says less by choice and more because he got caught out by the CCCFA he is going to have to spend the first quarter of this year catching up on tax payments after needing to throw his cash reserves into a project when the banks bailed on funding. “Such is life. Once I get through that, I will look around to see if there are any interesting projects in my area. I’d like to trade two to three properties this year in a JV capacity. I have two properties that have easy space for a third dwelling on the site under the new rules and the land is relatively flat. So, I will start to scope that in shortly and work out the costs involved. The CCCFA will keep me from making a big splash, but I’m happy to tick along quietly after being quite aggressive for the last six to seven years. If anybody feels stuck in a property that doesn’t make sense, remember that those who held property through the GFC are now wealthy. That’s a broad statement, and some people will be in a tight spot, particularly with the tax changes.”
APIA board member and owner of Shortland Chartered Accountants Amanda Watt says her grand plan for this year was already underway last year. “I’ll continue to run numbers for different scenarios (interest rates, loan terms, more P&I and tax changes) and renovate/upgrade my properties to increase rents. Given the number of headwinds that will be confronting investors this year, one of my personal goals is to put myself out there to network and share my knowledge with more people.
APIA member and owner of Harcourts Alexandra Park (previously Property Ventures) Mark Honeybone says he doesn’t want to sell anything if he can, but if he has a project or trade with a big debt that isn’t not making me money, he’ll try and bail on it and sell. “I would rather just have buy-and-hold debt and pay as much off as I can over the next year.”
APIA member and author of Property Quadrants Nichole Lewis says she will be looking to complete some renovations with the aim of making $100K per renovation. That should be doable in a down market when you can buy well and write your own deal. I’ll also be looking for my next hold. I’m very open to long settlements and early access as well as vendor ventures and money partners. If I can offer a good return back to short-term money partners, then that would be a win-win. For my portfolio, I will only look for multi-income blocks of units and not limit myself to Auckland specifically, as some solid deals outside Auckland are cash positive with opportunities to add value. A healthy mindset will be vital for this year and I will support my well-being by only having the right people around me.
