18-04-2017

 

by Richard Woodd, TPIA executive committee member

 

Photo: From left Colin Jackson (sponsor), Ashley Church (speaker), Colin Comber (TPIA President)

Ashley Church, chief executive of the NZ Property Institute, painted a positive scenario for residential property investment for the foreseeable future when he spoke to the TPIA monthly public meeting on April 18 on the theme: Is the party over, is a crash coming?
However, he could not predict what measures any government may take to attempt to close the widening gap between static personal income and rising rents and house prices.
Ashley, who with his wife has a $7.5 million portfolio and debt of around $3.5 million, said based on media coverage and political statements, "you could argue that the future looks bleak, dark clouds are gathering, yields are down and prices have soared.
"But property values have risen steadily over the past 45 years -- with a couple of blips -- and they will continue to in the future. It may seem hard to believe but the $1 million Auckland median house price will be $2 million 10 years from now," he said.
Housing and Immigration were major issues of the current general election campaigns, but in terms of imposed constraints, he believes we won't see much more than political posturing.
"New arrivals last year were 127,000 of which a third were returning Kiwis and Australians and 20% were students. The effect of foreign investors on house prices is a subject of much debate. The media says the impact is 30% while property analysts believe it's more like 9%. It's not a simple equation and controls will not change things much. A recent survey of the economic contribution of different ethnic groups put Chinese at the top and Kiwis at the bottom, so that's food for thought. 

"When we reach a population of 10 million, however, it will be a different discussion."
He ran through the crises and challenges of the past that should have spelled doom at times for property investment returns: the Vietnam war and later two Gulf wars; Britain abandoning NZ and joining the European Common Market causing a 10 year recession for us; two severe oil price shocks; major overseas borrowing to fund the Think Big projects; Muldoon's price and wages freeze; Rogernomics, economic form, removal of manufacturing and farming subsidies; the start of GST; inflation 20%, mortgage interest rates over 20%; reform of the welfare state etc.
"And guess what happened to house prices between 1963 and 2011? The national median price doubled every ten years regardless of these major events. A more mature approach to property investment has developed and people did not panic when's events such as the 9.11 attacks and the GFC occurred."
Has the market peaked? He thinks not. It can't be judged by what's happening in Auckland because all regions of NZ represent distinctly different markets with different drivers of price and demand.
"There is a housing under-supply and a steady decline in house occupancy rates, which are down from 3.29 people in 1986 to 2.87 now despite total population increasing. Another driving factor is more active property investors, claimed to be responsible for anything between 25% and 42% of price growth.
"These and other drivers of price are very strong snd if the market cools it will be through intervention not lack of market dynamics."
Will there be a capital gains tax? "We already have one though nobody talks about it. If you sell an investment property within 10 years you'll be taxed on the profit. The only area left is the family home and nobody will ever tax that. Only Gareth Morgan's party is pushing for it."
Loan to value ratio restrictions? "Currently 40% deposit requirement may go to 50%, although the impact of the current level has been minimal. We might see more property syndicates forming to meet tougher LVR rules."
Debt to income restrictions: "We should be more worried about this insidious prospect based on your earnings versus the net value of your property, with a 4.5% cap. It didn't work in the UK but it wasn't compulsory. Set at 4.5 % it would cause a cause a collapse of the property market as it would prevent people borrowing money. Finance Minister Steven Joyce has put it on hold till after the election , but I think it's a dead duck."
Mortgage rationing? "This is being driven by the inability of banks to borrow more from within New Zealand and is driving up interest rates as banks pay more to their depositors to attract new funds."