Auckland property prices - Some initial thoughts for 2013

Housing Market Written by John Bolton, Jan 29 2013

There’s only so much you can write on Property Investment and Mortgages before it feels like we are going over the same old territory. Buy below market value, and focus on yield yada, yada, yada. The rules don’t really change and fundamentally what has worked for successful investors in the past works for them now. At this point I should throw in one of my mixed up metaphors about not swimming with the fishes or something like that.

2013 looks like it is shaping up to be another big year for Auckland property. Prices look like they could go higher in the growth suburbs, fuelled by the media, general population growth, and lots of investors late to the party. The problem I see is not enough property and more competition from other buyers. It is increasingly hard to buy well in this market based on fundamentals like yield. And against this backdrop I’m still trying to get my land use consent to build 28 town houses. $500,000 in fees later including $100,000 in Council fees and I’m not a hell of a lot closer to getting a green light! Little wonder there is a lack of supply.

So average prices are likely to go higher. That’s great if you’re selling property. However, the shortage of supply won’t last forever, so at some point prices will stop rising and might even fall. Melbourne had an incredibly strong run for a while until supply eventually caught up and prices there are down 8% over the past 2 years. Generally it takes 2 years to get to market for anything more than a simple subdivision. I’m sure like my projects, there is a decent chunk of development in the pipeline that will be delivered over the next 12-24 months. We still don’t have the big money coming into development and funding is still difficult with a dearth of non-bank lenders. On the lender front Resimac has entered the market in the past few months. Resimac is a large Australian non-bank lender that securitises. It’s early days but medium term I think Resimac will fill the gap for Investors with lots of equity but reliant on rental income. Banks have an over-the-top aversion to older investors who live off the income on their properties. Resimac has also introduced a Low Doc product for self-employed. It’s a genuine Low Doc product for clients who cannot adequately prove their income, but its not liars docs. Unfortunately Low Doc won’t work for build projects.

One of the issues with lack of supply is that the credit crunch wiped out a lot of our builders and they don’t have the balance sheet now to fund projects themselves. However, we aren’t going to solve Auckland’s problems with lots of small projects although that’s a good start. Ultimately we need to see bigger players coming into the market, working on scale projects. When the big boys roll into town that might be the opportune time to sell. Hopefully I’ll have my developments finished before then!

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