APIA Blog

RSS Feed

Andrew Bruce: How do you start investing in this market - a cautionary note for first-time buyers

Wednesday, September 07, 2016



Andrew Bruce is the President of the Auckland Property Investors' Association and is passionate about sharing his experience with fellow investors.

Property markets work in cycles, and currently, we are in the upper stages of this market cycle. When will it finish, nobody knows.

Related article: What is a 'housing crisis'?

It seems you can’t open the paper or online media these days without an article talking about property prices. With this level of interest in the market and the legitimate concerns about the unaffordability of housing, particularly in Auckland, there is little wonder enterprising entrepreneurs are creating ways to assist people looking to gain a foothold in the market. The options I’ve seen recently have ranged from buying shares in a property through to potential crowdfunding opportunities.

While the marketing of some of these companies may appear compelling, what we need to be aware of is the property market works in cycles. Currently, with the associated media hype around property we could be forgiven for thinking that property is a one-way bet and that prices will never stagnate or go down. It was only six years ago in the final quarter of 2010 that property prices decreased.  Before that, the Auckland market also took a hit for the most of 2008.

From my experience, having now been through two property cycles, there tend to be repeated discernible patterns. At the start of a cycle, prices can stagnate or decline (as in 2008 and late 2010). In 2012 property prices in Auckland started increasing. Immigration was slightly negative, but interest rates were starting to drop.  Auckland at the time had an undersupply of houses.  Since then we have had the perfect storm for property owners/investors of a persistent undersupply of houses, net migration above 69,000 (which is significantly above the 10-year average) and the lowest interest rates on record. I have no doubt that these three factors in cohort extended the current property cycle.  Will the boom persist?  Of course not.  At some point, the party will stop or at least slow down.  

Recently the Reserve Bank have brought in new rules restricting the amount of money that banks can lend to property investors and first home buyers. Along with this, banks appear to be more selective about how much money they will lend altogether. There is also talk of more restrictive lending policies.

Please don’t assume from this blog post that I’m bearish on property and selling up, this is not the case at all. What I want to do is show property markets goes through cycles and in the end the people that I know who have been very successful in the industry have been long term players.

Related article: 10 questions to ask before you buy a rental property

I can remember back in 1996 when I purchased our first property having only just arrived in Auckland. At the time, I couldn’t afford to buy the property myself, so I went in half shares with a friend. A few years later this friend sold his share to my partner.  The best move we have ever made financially was not to sell that property.  We still own it today.

It's all very well for those of us who have investing for a long time but what about first home buyers or first-time investors? Referring to my earlier point about looking at opportunities to gain access to the property market, some successful strategies I’ve seen implemented by first time buyers who are Auckland Property Investors Association members include:

  1. Purchase a property in shares with somebody else (if you do this make sure you have a formal written agreement in place).
  2. Rent where you wish to live and then buy a rental property in another more affordable location.
  3. As John Key has been quoted in the media recently saying, look at an apartment for your first home.

Whatever choice you make, be mindful that property is a long-term game that is not without risks. Whenever you borrow money, you are entering into a financial agreement that you have to honour as the repercussions can be very serious.

Related article: How to choose the right investment strategy for you?

We need to be aware that property markets move through cycles. Purchasing a property is likely to be one of the largest, if not the largest, investment you will ever make.  It is imperative that you educate yourself before spending your hard earned money.

 


Recent Posts


Tags


Archive

Introducing Our Partners
Principal Sponsor - Kris Pedersen Mortgages & Insurance logo Gold Sponsor - Barfoot & Thompson logo Gold Sponsor - CoreLogic logo Keith Hay Homes logo Maintain To Profit logo The New Zealand Property Investors' Federation logo
09 360 2376
info@apia.org.nz

The Tenancy Practice Service and TPS Credit Control work closely with the Auckland Property Investors' Association. Our vision of bringing helpful resources, documents and high quality services to Auckland Property Investors and Property Managers is shared by APIA, so its a partnership that works well. 

The Auckland Property Investors' Association is a great organisation for those who want access to advice and information from a range of industry experts and partners. 



Mathieu Holt- Managing Director, The Tenancy Practice Service & TPS Credit Control
Through the Association I found the channels and methods to fund the purchase of property I never dreamed about. Grant Brown

All round it has been one of those things Neil and I felt was really worthwhile belonging to. We have learned so much it has just built our confidence in what we are doing.

Janice Bieleski
I read two articles in the monthly magazine that saved me over $5,000. That is my membership fee for the next 26 years and I am sure I will learn a whole lot more! John Duncan
Fantastic organisation. The networking opportunities are brilliant and provide us with information and opportunities that cannot be obtained anywhere else. We learn something new at every meeting and we've been in this game for nearly 20 years. Pauline and Gyanen Kumar

I find the information obtained from various APIA meetings very useful in guiding my own property investment and rental management.  I also enjoy the networking opportunities with like-minded investors.  I am inspired by other investors’ success and find the more experiences and knowledge that I share with others, the more confident I become.  

Thanks to all APIA event organizers and administrators for your brilliant work. 

Stella Shao

I like talking to people and learning from their experience because it gives me the confidence to invest well. I think it is a knowledge thing. I now know I am doing things the right way.

Stephen Weatherall

My APIA membership has become a total success.

Every time I attend a monthly or regional meeting I come away with so many useful and positive tips that have added value to my property investments and management.

Not only that, the website is a great place for practical advice and useful information. It has now evolved into an important resource for my business.

Talk about value for money! The discounts I have been getting at Bunnings when I present my APIA membership card have more than paid for my annual subscription!

Tim Duffett, Plan A Investments Limited