Tony Brazier

www.braziers.co.nz

Tony Brazier

The Press - Wednesday 10 November 2010

Don't Look Back Unless You Want To Go That Way

There are times, as investors, that we need to stop, take stock and have a good long honest meeting with ourselves. Usually when this happens en masse it shows up in the statistics a month or two later. One good example of this is in the growth statistics for what we commonly call 'conversions'. These properties were converted many years ago, under different regimes, from large and stately houses into various sizes and configurations of flats. They are scattered all around the dress circle, and the concentric zoning rings, of the Central City.

When things are going well in the market prices for this type of property are high, simply because with being older and nearing their 'used by' date, the land underneath becomes the 'highest and best' use of pricing this property/site. At other times when the developers do not see the demand in the market for new units and/or apartments these properties resort back to the next best reason for purchase which is rental return. A quick look at a long-term graph will show how dips in price levels correlate with lesser demand for housing development.

In recent times a similar pattern has emerged, caused by the global credit crisis, with price expectation for all property types being viewed very differently now, dependent on whether you are looking to the future of living in the past. We are in a 'mexican stand-off' in the market temporarily as buyers have reverted back to wanting return in order to pay the higher mortgage rates and also to cater for the lost advantages in claiming depreciation. The vendors, however, are still generally holding on to older belief that property increases at around 10% per annum every year, no matter what, and shouldn't be let go lightly.

There are times, shown in almost every decade, of sustained slower growth due to rent freezes, over-supply, share market crash, sector crises and all sorts of different flus (bird, swine etc) that result in a flat-lining of property growth.

It is no surprise to the economists that with personal incomes only growing at 5% per annum that property could not sustain 10% per annum forever and with the property industry being driven mainly by the availability of credit, (read 100% mortgages,) the market was always going to 'take a breather' when the credit ran dry for whatever reason.

So how do we solve this impasse? Well, firstly in our meeting with ourselves we have to come up with a plan that involves an attitude shift. A little like a balloonist trying to get off the ground, we may need to sacrifice the weight of our beer crates to get lift-off. In other words we need to lower our price expectations to get our property sold. Only then can you move on to take advantage of the wonderful array of other properties available for the taking in this market.

There are two other ways to get your sale. The first is to increase your rents, thereby offering a greater return to buyers, which is a definite possibility, especially as homes are demolished and creating demand, but this is still limited to what is left in tenants' wage packets. The second is simply to just wait, as time has always been the greatest friend of the investor. However, if action is required soon than later, vendors must simply meet the market which, at this stage, is only 5.5% below the peaks of 2007. Let's face it, we had phenomenal growth from 2004 to 2007. However, when analysed from 2004 to now, it can still be described as acceptable growth. We need to stop thinking about what we could have had and just get over it. That bus has left.

Generally we humans are slow learners. This pattern has been here before. Now with banks loosening up, (some giving 90% loans – Sunday Star Times), with added pressure on rentals, with only 17,000 consents for 23,000 houses needed, and with more clarity on issues like depreciation, insurance and LIMs, activity and growth could kick away earlier than the middle of 2011 as indicated. The irony in all of this is that these markets are the ones when the better properties and greater choices of property are available to us due to the lessening chance of them selling before they are even advertised.

If the ANZ survey of 1,000 investors is correct (Press 03/11/2010) about long term growth, 26% of investors can see double digits growth within the next five years. In the meantime though these buyers will need a greater return than is currently on offer.

Vendors who bought since 2007 will either need to wait until the market catches up or take a small loss. Other vendors who owned long before 2007 need to concentrate less in what they could've had if they sold in 2007 and more on what they have gained since their purchase. We don't have to go far in our fair city to find people who have had losses of all types recently. The difference in their moving forward is in their attitude to those losses and how they plan to make up for them.

Tony Brazier has worked in the property industry for 23 years and owns a real estate company selling and managing residential and investment properties.

This columns information is of a general nature only. Readers should seek professional advice before acting upon it.