A special message for first-home buyers
The time’s right for those wanting their first house to take advantage of property investors’ troubles, says BNZ chief economist Tony Alexander.
The market is moving in your favour. A lot of investors have over-extended themselves in the past three years and their hopes of new investors taking property off their hands at a tidy profit have been dashed. The next layer of the investor pyramid has been stripped away by the need to raise a 40% deposit and by banks steadily tightening debt-servicing criteria.
In fact, when an existing investor with a few properties goes to their bank these days seeking finance for a new purchase, even if they have a 40% deposit, banks are saying they need 40% coverage also for their existing portfolio. In many cases, that means either the planned purchase by the established investor does not happen or they achieve it by selling some of their existing stock.
Auckland is interesting in that there is now an oversupply of properties which can be intensified. The finance is not there to allow construction and neither are the builders. So lots of investors are now sitting on potentially highly geared properties they cannot get anyone to buy and develop.
They, like you, are reading things like this. They are hearing the lobbying from real-estate agents for loan-to-value-ratio (LVR) restrictions to be removed. Some may be facing settlement soon on an apartment they signed up for a couple of years back.
They are nervous and getting worried that any profit on paper they may have achieved in the past year or two could be disappearing fast. They are starting to get stressed.
The FOMO – fear of missing out – that drove them to gear up and buy any old piece of property last year and earlier is now working in the opposite way. As a mass, they are vulnerable to something, to some trigger – maybe it’ll be newspapers catching up with the way power is shifting in the Auckland market and running stories of outright losses, dragging out the usual head-on-astick suspects to predict, yet again, a collapse in prices.
The time is ripe for you, first-home buyer, to start taking advantage of property investors’ pain. Relax. Take a few breaths. Take your time.
Look at a number of properties.
Start throwing in low-ball offers in case you catch a truly panicked fish. Alternatively, simply make an offer for what you think a place is really worth – and stick with it. Don’t let the agent work you. They know that at this point in the housing cycle, the effort they need to put in is on the vendor – which means convincing them that the days of stupid prices have ended.
Stick with your price and walk away if they won’t budge. If they spray, walk away!
Now, go back and read that little list again. Think about it, and then ask yourself this: as someone with no previous experience of home ownership, essentially no experience of housing cycles, little insight if any into the mind of someone selling, what would you do if your offer is rejected in an environment where LVR restrictions have been relaxed especially for you – as the real estate agents want?
You will borrow more money to pay a higher price, simply because the money is there, you are being told to do so and you have not felt the stress yet of worrying about debt and keeping your home when your income falls.
Now that the market is moving in your favour, the last thing you need is for extra demand to be thrown into the market by LVR reductions simply to bail out investors who have overcommitted themselves.
Tony Alexander: don’t let the agent work you.