We pulled 7 gems from the torrent of property news this week to keep you abreast of the most important insights affecting investors. 23-29 November 2019.
The last one is a real doozy!
NZ Interest Rates Forecast
We updated our NZ Interest Rates Forecast page with the latest data. New data; same prediction… you’re more likely to see leprechauns dancing in your garden than a return to high mortgage rates in the foreseeable future.
RBNZ Leaves LVR Restrictions Unchanged
On Wednesday the Reserve Bank (RBNZ) decided to leave mortgage lending restrictions unchanged, citing concerns low interest rates could prompt banks to lend more to borrowers with small deposits.
Bank residential mortgage lending is restricted as follows: No more than 20% of their residential mortgage lending to owner-occupiers with less than 20% deposit, and no more than 5% to investors with less than 30% deposit.
New Mortgage Lending to First Home Buyers Up 20%
Mortgage data released on the eve of the Reserve Bank’s LVR restriction review shows first home buyers in October made up the highest portion of new mortgage lending they’ve ever accounted for since at least 2014. Year-on-year, new lending to first home buyers was up 20%.
Comment: Life might be getting harder for renters as residential landlords sell up, reducing the supply of rental properties and increasing rents, but it’s nice to see first home buyers reaping the benefits.
First Home Buyers Worse Off Than Before
Interest rates have tumbled, but it appears that has simply helped pump up house prices at the bottom end of the market, meaning first home buyers are likely worse off now than they were before mortgage rates were cut. This is gleaned from interest.co.nz’s latest Home Loan Affordability Reports.
Comment: We’ve said before that interest rates are one of the biggest drivers of the property market, along with immigration and restrictions on supply. In this case, boomers can’t be blamed for millennials’ willingness to bid up prices as interest rates decline.
Porirua Office Building Sells for 20% Yield
Bayleys sold 9 Lydney Place, Porirua for $315,000 according to Bob Dey’s report. The property is described as a 329m² site with a 530m² 1960s office building, previously Government organisation offices. It was sold with vacant possession. Market rent is said to be $63,800 p.a. which would result in a 20.3% yield.
Comment: It shows what can happen to investors who get all giggly and pay top dollar for a building with a trophy tenant but forget to protect the downside. Two simple questions might have helped: How many years does the lease have to run? How easy will it be to replace them if they don’t renew?
With a Government tenant on a strong lease, let’s say the building would sell at a 6% yield, i.e. $1,063,333. They just vaporised $748k by losing their tenant and selling with vacant possession. Ouch.
Landlord Awarded $50 Compensation for $25k Damage
A Te Aroha landlord is calling the tenancy tribunal “unfair towards landlords” after his “worst tenant” was ordered to pay only $50.44 on top of the bond after creating $25,000 worth of damage.
I’m sorry to say I’m disappointed but not surprised. With the current government’s war on landlords, nothing would surprise me.
Ray Dalio Shorts the Sharemarket
The Wall Street Journal says Ray Dalio’s firm Bridgewater Associates, the largest hedge fund in the world, has placed a $1.5 billion bet that global equity markets will fall in the next three months.
The report says the bet uses put options assembled over months by Goldman Sachs and Morgan Stanley, and will pay off if the S&P 500 or the Euro Stoxx 50 or both decline.
Bridgewater says: “First, the way we manage money is to have many interrelated positions, often to hedge other positions, and these change often, so that it would be a mistake to look at any one position at any one time to try to deduce the motivation behind that position.”
“Second, we have no positions that are intended to either hedge or bet on any potential political developments in the U.S.”
That could allow sceptics to interpret things any way they want, but Ray Dalio leaves no room for doubt. On Twitter he said, “It’s wrong. I want to make clear that we don’t have any such net bet that the stock market will fall.”
“I believe that we are now living in a world in which sensationalistic headlines are what many writers want above all else, even if the facts don’t square w/ the headlines. You can believe me or you can believe The WSJ writer.”
The Wall Street Journal stands by its report.
What do you think? I personally think it’s a sad day for journalism if the WSJ has joined other mainstream media in succumbing to clickbait headlines and fake news in a desperate attempt to generate readership.