Over the Christmas holiday period I had the luxury and privilege of travelling to the UK and Paris. Eye opening to say the least. It was like Auckland on extreme steroids with everything fast paced yet efficient. It’s something I've been wanting to do for some time and can finally say that I have!
While in London, I spent most of my time staying in a two-bedroom apartment in Elephant & Castle, a lower decile suburb in the center of London. That apartment would have a price tag of circa £500,000, so not too dissimilar to Auckland. London is quite clearly more advanced in terms of how a city operates with mass population. From the simple things like standing on the right hand side of escalators to let those in a hurry run up the left, through to the bigger issues like public transport which can be relied on to run on time. As Auckland continues to grow in population, these efficiencies are what must improve. An extra lane on the motorway simply won’t cut it.
While abroad in London, I took some time to look at property and speak with locals to get a feel for similarities between there and Auckland, and given that, where I believe the market will go and what I would do as an investor in NZ. Both cities (for different reasons) attract wealthy people who want to buy property. We both have a large gap between rich and poor and it’s a gap which continues to widen. The key similarity I found which makes me doubt a market correction is coming is this: much like Auckland, the sky is filled with cranes carrying the materials required to build large, high end apartment buildings. A recent Auckland article stated that there are more cranes in the air in Auckland now than ever before. In London, these high-end apartments are being built in what up until now would be considered a lower decile suburb, although the existing residents of those suburbs will have no chance of affording to buy them let alone rent them. The wealth is spreading and will push those that can't afford it even further out, thereby further increasing the value of property in central London. This is exactly what I see in Auckland with high value developments going into areas like West and South Auckland. These are attracting strong income earners and pushing those lower earners out of Auckland and making it a city for those that can afford it.
This same comparison could be made for all top tier cities around the world and I see it as a formality for Auckland’s future. This then creates a micro economy which only those that can afford it can be a part of. This is what everyday people of London are expecting to happen, and given the demand for supply in Auckland from people that can afford it, I’d say we are heading in the same direction.
So for 2017, as an investor, I’ll continue to say what I've said in my last few articles. Consolidate what you have. Where possible, look to improve the yield on existing properties and get more efficiency out of your existing portfolio. I wouldn’t be selling unless it is to pay down debt or to replace the property with a better performer. If you do buy, then be open to doing more due diligence and making sure the numbers stack up. If they don’t, walk away. Whilst the market has flattened a bit, we are already seeing more activity this year and I don't predict a significant correction in the short term.