Is Auckland getting speculative?

Lifestyle Written by John Bolton, Aug 19 2012

Maybe. I just had clients miss out on a small 2-bedroom house in Sandringham on a half site that sold for $668,000. 3 months ago it would have sold for $625,000. 18 months ago $625,000 would have bought you a renovated 3-bedroom bungalow in the same area. In that lies the problem.

Auckland has a shortage of good condition properties within 10km of the CBD, which is pushing prices up. The shortage is creating supernormal “profits” for property traders, which in turn is attracting more punters to trade. Who would have thought we’d see ex-state house “do-ups” selling in Grey Lynn for $960,000. The same houses 18 months ago were going for $800,000 maybe less. When you trade based on prices increasing then I think it becomes speculative. When you can buy a house for $530,000 paint it for $10,000 and sell it 4 weeks later for $630,000 as one of my clients just did, there is something not quite right with the market and that invites ongoing speculation. With speculation those that get in early make all of the money. Those that get into the market late risk losing money.

We all know of someone that has made $100,000 buying and selling a property and it sounded so easy. It's not hard to want a piece of that action. The get rich quick groupies that blow good money to attend “property seminars” are particularly vulnerable. I haven’t conducted a survey, but wonder if “get rich on property” seminars are back in vogue again. The irony is that most of the gurus that ran these seminars in 2007 are now bankrupt or AWOL. Looking at the current market I’d suggest that there are a lot of punters out there that will lose money.

The clients mentioned earlier missed out because someone else was the “Nutter” in the room that night. That’s the way I like to describe the current situation. Buyers miss out on auction after auction until they become the Nutter. The Nutter, sick of spending money and time chasing property, gives up on any sense of rationality and keeps bidding until they win. Each month we watch perfectly rational clients gradually become Nutters. Part of our job is to try and keep them rational but it’s hard when they constantly see property slipping beyond their means. In an Auckland context it used to be Sandringham and Ellerslie, and then Onehunga and Mt Albert. It is now New Windsor, Avondale, Te Atatu Peninsula, Mt Wellington, Mangere Bridge. In the better parts of Avondale, we see properties starting to hit $600,000! I always come back to the fundamental rule of property that it is only worth what someone is prepared to pay for it. House prices will rely on supply and confidence. I fully accept that there is a shortage of quality property in Auckland and has been for a number of years. This is the upward driver. However, this will eventually sort itself out with renewed building activity. Confidence is much more fickle.

How quickly could First Home Buyers lose confidence paying $800,000 for a 3 bedroom house in Mt Albert?  How quickly could a global event turn Nutters into Doubters? You will not want to be a heavily leveraged trader when the Nutters turn into Doubters? There are excellent opportunities out there to make money from property whether buying and holding, or trading. The secret is to work hard at finding the right properties and don’t get caught up in market hype and pay too much for any old thing. If you don't drive a hard bargain, then you're speculating and you’re the Nutter in the room. It's understandable if you buying a home, after all its not a purely rationale decision, but there's no excuse if you are buying an Investment Property.

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