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.

New Zealand Listener - - THE INVESTMENT GAME -

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.

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