NZ First’s shameful Resource Management Act betrayal, house prices defy predictions and 8 other insights for investors in our property news this week…
In property news this week…
- NZ First’s shameful Resource Management Act betrayal
- Gung-ho Gary vs Handbrake Helen
- Valuers report high demand for residential valuations and strong prices
- House prices defy predictions
- CoreLogic says house prices heading for a 5%-7% fall
- Queenstown property prices hammered
- Covid-free New Zealand tempts foreign property buyers
- Who said hotels are dead?
- Demand for smaller commercial properties keeps yields under 5%
- Commercial rent collection reaches near pre-Covid-19 levels
NZ First’s shameful Resource Management Act betrayal
It appears NZ First was complicit in changes to the Resource Management Act (RMA) that will negatively impact the speed, certainty and costs of gaining a resource consent.
Last week I wrote about the Resource Management Act getting a whole lot worse thanks to the Greens who manipulated the inclusion of climate change considerations into localised RMA decisions.
The Greens are so driven by ideology that they appear oblivious to evidence of the zero impact these onerous changes will have on carbon emissions.
That’s because carbon emissions are capped at a national level by the Emissions Trading Scheme (ETS), which has a binding emissions cap for the whole country.
Decisions at a local level have no impact on the overall national cap because every tonne of carbon not emitted is a tonne of carbon available for someone else to emit.
The changes to the RMA provide no climate benefit but lots of costs. All pain; no gain. Well, they do give greenies a warm feeling so I guess there is some gain. Greenie warming as opposed to global warming 🤣
And now news that NZ First had an MP on the select committee that allowed this nonsense to happen. To quote from the article:
“New Zealand First could have stopped this legislation – or at least had it referred back for a further round of consultation. But it didn’t.”
In the election run-up, NZ First is spinning the image of a party acting as a handbrake on Government. Deputy leader Fletcher Tabuteau said at a recent event, “New Zealand First has been an accelerator for those good ideas and, I tell you what, we’ve been a handbrake for the bad ones.”
No you haven’t, Fletcher. The RMA is one of New Zealand’s worst performing pieces of legislation and by permitting this bad idea it just got a whole lot worse.
At the same event Shane Jones said, “Don’t listen to other parties who describe us as a handbrake. Listen to our leader who says we are fountains of common sense”.
No you are not, Shane. This ideological addition to the RMA is anything but common sense.
It’s not the first time the chameleonic NZ First and its dear leader has said one thing but done another, betraying the country in the process.
Never mind, there’s an election coming up. You know what to do.
Gung-ho Gary vs Handbrake Helen
When investing couples have differing appetites for risk, or even willingness to change, things can get tense. Here’s how to get the best out of investor opposites.
At NBCO we often find that one partner is more conservative and the other more comfortable with prudent investment risk. However, both investor profiles have strengths and limitations, and the secret is in understanding this.
Too often the tendency for couples is to become positioned and view the other as wrong – Gung-ho Gary vs Handbrake Helen. Thereby missing the opportunity to investigate possibilities and create a way forward that’s acceptable to both.
Here’s an example, loosely based on a recent conversation I had.
This couple have been sensible investors over the years and done okay. Their owner-occupied house is debt free, as is their residential investment property.
They used to manage the investment property themselves but recently put it in the hands of a property manager. Gary said it’s the best thing he ever did and wished they’d done it years ago.
I asked a few questions and ran a few numbers. The investment property is worth $1.5 million and is rented out at $800 per week. That works out to a 2.77% gross yield.
To calculate net yield, i.e. after costs such as rates, insurance, property management, repairs & maintenance, etc, we have a rule of thumb…
Take the gross yield and deduct 1.5%. That should give a result that is roughly within cooee.
With all the costs being imposed on investors by the government’s current war on landlords, though, it’s probably more like 2.5% that should be deducted. We’ll stick with 1.5% for this example though.
Deducting 1.5% costs from the gross yield of 2.8% we get a net yield of only 1.27% pre-tax. Ouch.
This couple are clearly not in it for the income so they must be after capital gain, right? Sadly not.
They are both retired and rely on the income from their investment property, which I calculate to be a mere $19,100 pre-tax.
They would earn more than that if they just stuck it on term deposit! Not that they ever would, they’re more sensible than that.
Gary has been wanting to sell the investment property for some time and put the money to better use. One says go; the other says no.
If they put that $1.5 million into Provincia Property Fund they’d have a pre-tax income of $90,000 p.a.
That’s 4.6x what they’re currently getting, and they’d be getting capital gains too!
Even if they diversified two-thirds into a few other high-yielding investments (e.g. high dividend shares, property funds), they’d still be earning over 2x what they are now.
Currently they’re immobilised because their risk profiles don’t align and they don’t know how to navigate a way through the impasse.
There is a natural conservatism and reduced willingness to accept change that comes with advancing years. But if you’re open to exploring possibilities, to picking things apart with the help of expert professionals to understand your options, you’re then able to make an informed decision. That’s how they can work together as a complimentary team.
Here’s to many more years of Gary & Helen successfully investing together.
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Valuers report high demand for residential valuations and strong prices
Tony Alexander’s monthly survey of property valuers reported +23% growth in the volume of enquiries for residential valuations in June and +50% in July.
Alexander says that valuation activity levels have picked up commensurate with the overwhelmingly positive stories regarding activity in the residential real estate sector.
The volume of “off the plan” construction valuations is a different story, however, with the volume of enquiries still in negative territory.
Alexander says, “We should expect to see decreased construction activity over the coming 1-2 years as developers pull back in the face of reduced enquiries from buyers and lower availability of funding from lenders.”
Valuers were also asked whether they feel prices are rising or falling at the moment. Alexander says a change is notable on residential property from a net 18% seeing prices rising to 33% this month. “This probably reflects the absence of any evidence of panic selling or big generalised price falls for residential properties.”
House prices defy predictions
In April, economists were predicting Covid-19 could cause a 10% to 20% drop in house prices.
And on 3 June real estate data firm QV issued a stark warning that New Zealand’s property market is on the brink of a material drop in prices for the first time in nearly 12 years.
And yet house prices continue to surpass predictions. Median house prices across New Zealand increased by more than 9% in June compared with June 2019 according to the latest REINZ data.
June marks 105 months in a row of year-on-year median price increases for the country.
Waikato achieved a record median price in June of $615,000 up more than 17% on June 2019.
May’s median price of $600,000 was a record too, thereby marking two consecutive months of record median prices in the Waikato.
Bindi Norwell, Chief Executive at REINZ says, “Earlier this year, there were a number of predictions that house prices would fall post-COVID. However, we are yet to see any evidence of that happening with every region in the country seeing an uplift from the same time last year, and 10 out of 16 regions seeing an uplift from May.
“With wage subsidies and mortgage holidays still firmly in place, and demand for good property exceeding supply, we wouldn’t be so bold as to say there won’t be an easing of pricing in the coming months when these support mechanisms come to an end. But right now, Kiwis’ love affair with property continues unabated – especially with the low interest rates we currently have in the market.”
COMMENT: What we’re seeing in the market supports this view.
CoreLogic says house prices heading for a 5%-7% fall
Property values could be at a turning point and may be heading for a 5%-7% fall, according to property data company CoreLogic.
The company’s latest Market Pulse report says its quarterly housing value index declined 1.5% nationally in the second quarter of this year, with larger falls seen in Auckland (-2.4%) and Dunedin (-2.5%) with smaller falls recorded in Hamilton (-1.1%), Wellington (-0.4%) and Christchurch (-0.4%), while Tauranga went against the trend and was up 1.4%.
In regional centres the biggest declines were in holiday hot spots Queenstown (-7.2%) and Thames-Coromandel (-5.3%) with a mix of falls and rises in other centres.
“Overall, property values seem to have reached a turning point and we estimate that the national average could ultimately fall by 5-7%.
“That would obviously be unwelcome for any property owner, although a bonus for would-be buyers, but it would be a smaller fall than the figure of 10% during the GFC,” it said.
COMMENT: What we’re seeing in the market does not support this view.
Queenstown property prices hammered
House prices in Queenstown-Lakes declined by 3% between May and June and are now 9.1% lower than they were three months ago and 7.6% lower than they were in June last year, according to the Real Estate Institute of NZ’s House Price Index (HPI).
The HPI is considered a more reliable measure of the overall movement in residential property prices, because it adjusts for differences in the mix of properties sold, while other measures such as average and median prices do not.
With the exception of Queenstown-Lakes, price movements around the country were mostly small but tended to be a bit stronger in Auckland.
Overall, it’s probably too soon to try and pick a post-lockdown trend from them.
Covid-free New Zealand tempts foreign property buyers
Real estate listings website Realestate.co.nz says there seems to be a link between publicity about New Zealand’s Covid-19 status and surges of interest in local property from offshore buyers.
Spokeswoman Vanessa Taylor said international buyer numbers had been monitored closely since the country went into lockdown in March.
April 2, when the country had its largest number of new Covid-19 cases for a single day, was also the low point for international traffic.
When there were no new cases reported on May 4, for the first time since March 16, international traffic spiked to just under 15,000 unique browsers.
Taylor said the data would continue to be watched but it seemed that there was a clear correlation.
Real Estate Institute chief executive Bindi Norwell said there was a clear pattern of New Zealanders returning home to the “safe haven” of New Zealand.
“Predictions are that up to 100,000 Kiwis could return home before Christmas if the Covid-19 situation continues in a similar fashion as we’re seeing right now,” she said.
Who said hotels are dead?
The Hilton hotel group announced the DoubleTree by Hilton Auckland Albert Street yesterday, in a redevelopment of the 92 Albert Street office building.
Originally the Simpson Grierson building, it was one of 3 office blocks in the complex completed by Chase Corp in 1987. The development faced 4 streets – main thoroughfares Albert, Queen and Victoria, and the narrow side street, Durham St West.
The hotel is expected to open in the first quarter of 2023 and join Hilton’s other Auckland hotel on Princes Wharf.
Demand for smaller commercial properties keeps yields under 5%
Smaller retail premises appear to be maintaining their popularity with so-called mum and dad investors, with yields on the desirable ones remaining under 5%.
Case in point: a 170m2 unit at Silverdale in north Auckland sold recently for $782,250 at a 4.73% yield.
It was leased at $36,995 p.a. to a dental practice, with almost six years to run on the lease, and was part of a suburban retail centre that included a medical centre and other health practitioners.
According to Bayleys’ agent Tony Chaudhary who handled the sale, medical tenants are seen as very desirable by mum and dad investors, along with dairies and liquor outlets, because they are regarded as resilient businesses, even in tough times.
The fact that it was part of a modern complex and located in a high growth zone added to its attractiveness.
A 300m2 warehouse/office in Wiri with a printing company as long standing tenant paying rent of $50,000 p.a. sold for $1.075 million at a 4.65% yield.
And a 260m2 retail/light industrial premises on a 400m2 site with development potential on Great North Rd, Grey Lynn sold for $1.35 million at a 4.59% yield. It had two tenants paying combined rent of $62,000 p.a.
Commercial rent collection reaches near pre-Covid-19 levels
Property management platform Re-Leased says commercial rent collection statistics suggest the downturn may have subsided already.
With the benefit of hindsight, April and May were the poorest performing rent collection months across the last 3 years, regardless of the asset class.
However, both June and July of 2020 have seen businesses return to relative levels of normality and subsequently have provided significant improvements in rent collections since the lockdown measures were enforced.
Whilst rent payments in June (80%) are not yet back up to 2019 levels (an average of 90%), they are suggesting that the majority of pain for landlords and their cash flow may have passed.
The greatest improvements experienced in the last 2 months when compared to April and May can largely be attributed to the increased cash received from retail tenants.
After hovering around the 60% collection in the level 3 and 4 lockdown periods, retail rent collection has climbed back up to 80% in June while collections are trending even higher for the early part of July.
Whilst still early in the month of July, there are strong signals that retail rent payments will be at their highest since April (70% of retail rent had already been collected after just 6 days of being due).
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