Chances are you have just come back from time spent around the BBQ, and a holiday spent eating far too much. (In my case it was mostly chips and dips, cheese boards and cashew nuts!) You’ve come back with a New Year’s resolution to get fit and buy a property in 2010. If buying a property is one of your goals in 2010 then an obvious first step is to get a mortgage pre-approval in place or figure out what you need to get one done. For first home buyers the biggest obstacle to getting finance will be not enough deposit. For investors it might be selling off some poorly-performing properties and getting the overall equation cash-flow positive.
As a bare minimum you need to have a 5% saved deposit and less than $10k in consumer finance debts. You also need to have a squeaky clean credit record. If you cannot tick these criteria, how can you expect a lender to give you vast amounts of other people’s money? Your first goal has to be to get financially fit.
I think so, and I’ve been saying that for 18 months now. For me, it is almost always a good time provided you buy well and approach it rationally. The real question? How hard is it to find a good deal? There is no doubt that it has become harder to find a bargain in the past four months with more buyers in the market and a shortage of good properties for sale. That will gradually sort itself out probably towards the middle of 2010. In contrast to media hype, my view is that the property market will soften this year. I think after a fairly strong summer we’ll see the market gradually fall back to the prices we saw in the middle of 2009 (5% to 10% below the 2007 peak.) There really aren’t that many buyers out there, so if more sellers come on to the market then prices will stabilise. The catalyst could be changes to tax on property investments. Another factor dampening the market is bank credit rules, which will stay reasonably tight. This is having an impact on business owners, property investors and buyers with small deposits. As for mortgage rates, they will increase later in 2010 but I personally think talk of rates above 8% is overcooked. The last thing the Government needs is a return to high interest rates when it is trying to push through economic reforms. With so many borrowers on short-term rates, the Reserve Bank can take a more measured response to inflation. Taking a longer-term view, I believe it will stay a buyer’s market for the foreseeable future.
For newbie property investors, look for double-income properties, or properties that can be converted to double incomes. Most clients who look hard enough are finding low-maintenance and compliant properties in Auckland with gross yields over 7%. (Personally I would not buy anything that’s not cash-flow positive given impending changes to the tax system and given the state of the world generally.) For first home buyers chances are you will need to adjust your expectations. This will be mostly around location. The best buying is in locations where you can find motivated vendors. My experience is that you will typically be buying off over-extended property investors. That’s great because it is far easier dealing with objective sellers who are prepared to cut their losses. (These properties also tend to be poorly presented and have tenants in them which is a good thing because it gives you more of a chance to get a bargain!)
It staggers me how many home sellers do not market their properties properly. If you are going to use a real estate agent why would you use anyone less than the best? After all, the commission rate is the same whether your agent is good or useless! Get rational and objective about your money. Happy house hunting!