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Property Screeches To A Holt… (18 Year Low)

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Contributor:
Brian Dalley
Brian Dalley

Inaction by property investors, (who account for approximately 5% of total sales) cause the market to stall.

I find it extraordinary that such a small percentage of people could have such devastating effects. “SALES PLUMMET TO THEIR LOWEST LEVEL IN ALMOST TWO DECADES” says the Real Estate Institute of New Zealand (REINZ). The number of sales has fallen to its lowest level since electronic records have been kept.

On the upside, based on the above reports it is now unlikely the OCR (official cash rate) will be raised next month as I previously anticipated.

But let’s step back for a moment and take a look at what we are presented with instead of banging away at our own tom-toms.

As the system that monitors and controls cycles was tampered with five or six years ago it is going to take us some time to weather the storms and further turbulence is yet to hit. (Hence the current blip on the radar)

Five to six years ago a cycle had come to an end, it was time to take a break from soaring property prices to allow incomes to increase so further growth would be affordable.

It was time for the market to take a breather but it didn’t, and this is where it got all pear shaped and came unstuck. The system was tampered with and then became prone to failure. 

Lenders changed their lending criteria to keep loaning money, borrowers kept borrowing, and no one wanted the party to end.

Humans are like that, unpredictable, speculative and inquisitive we generally are out to better ourselves and in doing so often forget there is cost associated with growth.

My point is cycles have been about peaks and troughs, where what we should be looking at is sustainable growth, not the crash burn and rebuild cycles. 

Seriously, we really do need to start learning from the past as this isn’t the first time we have been rocked by a financial disaster. Although, the last was initiated in a different industry, (.com) but the fundamentals are the same.

All of the above makes perfect sense but is does little to explain the spike prior to Christmas (2009) and then screeching to a hold soon after.

The Spike - that is an easy question to answer; nervous and or over capitalized investors bailing out coupled with mortgagee sales and the normal November surge – no other reason really.

Subdued Market - affordability, the reason the market took a hit in the first place and still remains the key factor, (nothing to do with investors).

Yes there are investors that could be brought to their knees should changes to depreciation and tax write-offs against personal income come into play but is that having a negative effect on today’s market?

I don’t think so.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.  You can read more of his views and opinions on his website www.propertyprofit.co.nz.

  

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