Don't get caught with a hangover

Bottles of beer in a fridge

It’s midnight on a Saturday night and you’re out on the town. It’s been a great night so far and now you’ve got a decision to make. Finish your last beer, down a glass of water and grab a cab home knowing that this decision will make your Sunday a lot more productive. Or go with the alternative; you finish your last beer, grab a cheeky tequila shot and then move to spirits, not getting home until the early hours of Sunday morning. This decision causing you to spend the rest of your day feeling sorry for yourself with an horrendous hangover. 

This is the current state of the New Zealand housing market (certainly Auckland). We’ve had a great time these last few years, enjoying strong capital growth, coupled with bank appetite promoting highly competitive behaviour, low rates and high cash incentives. It’s been such a great time that even those that didn’t get into the market to make money, have found themselves with enormous equity gains – much like the friend who’s adamant they aren’t going to drink, and they end up having the best night.

So where to from here? For me, now is the time to down that glass of water and consolidate what you have in preparation for the next night out. Reserve Bank rules and internal bank credit policy have successfully cooled the property market, taking most of the heat out by making lending a lot harder to obtain. Some of this cool down can also be put down to kiwis pushing their summer holidays out to February (when the weather is more reliable) which is meaning the post Christmas hangover is lasting until late April – early May. We’ve certainly seen that trend this year internally with activity starting to pick up these last couple of months. 

We aren’t heading into a market crash. The fundamentals that we have seen in the past simply aren’t there. Those vendors that aren’t getting their asking price are simply taking their property off the market and looking to renovate rather than sell and upgrade. Demand is still far outweighing supply and the economy is going well in most areas. Nothing is going to change in the near future, especially given the impending election later this year. That being said, now isn’t the time to be taking risks and making poor decisions. As investors, consolidating your existing portfolio is a good place to start. 

Get rid of the dead wood.

Apartments less than 50sqm will hold your growth back. They will often have a slightly better yield but these are the first properties that banks will stop lending on and we have seen that in the last few months. These are equivalent to the tequila shot you thought at the time was a great idea. They will put you at the hands of the banks in terms of your ability to grow rather than keeping control yourself.

Split your banking relationship.

This is a tune I’ve played time and time again. Where possible, get your portfolio split across 2-3 lenders. Bank internal credit policies are having more of an impact on the market than the RBNZ rules are. These policies are different across banks so spreading your portfolio will mitigate your risk of being hampered by these changes. 

Right now it’s getting harder to get funding, average yields are horrible across most of the country, vendor expectation is overly high and capital growth is slowing. Now is the time to get your ducks in a row, don’t take any unnecessary risks and remember… nothing good happens after 1am!