Property Markets To Stay Away From This Year

The ever changing world markets are putting a large amount of strain on investments. Property lawyers would always advise that land and property is the best investment that can be made. Many of us look for houses for sale as a thing to invest in.   

Buyers look for a first home mortgage with the view that these investments will mature and keep their money safe. Most trust lawyers will agree that having properties in your portfolio has always been good advice for those that want to have a long term investment that will produce a good yield.

However, house prices are not rising as fast as they once did. World trading markets have slowed which means that the property market as a whole, is often put in a question to see whether we should invest in it at all. The procedure of buying a property can be quite complicated, with things like a pre-purchase building inspection which is required before you proceed and it also helps to reinforce the notion that property markets are something to avoid in general. 

What to avoid

  • Short term investments 

Short term investments and quick fix get rich quick schemes are not something you should get involved in as property, in this day and age, is a long term investment. That said, very popular areas can still have some buoyancy in the market but there is no guarantee on a return on a short investment. 

  • Property type

The type of property that you pick also determines whether it is a quality investment or not. Larger properties don’t sell as easily as smaller ones. Although large amounts of profit can be made on a larger property, this is something that you shy away from as the amount that can be lost is a lot more than it would be on a smaller property. 

  • Student areas

Try to avoid student areas as this type of market will be saturated with student rentals. The rental market can be quite lucrative if you are thinking of a buy to let property for instance, and a student area may be suitable in this case. However, if its a main residence for yourself that you are after, you want to avoid areas overpopulated with students. 

  • Financial advice

Talking to a financial advisor about the best way to get a good deal from a rental is a good place to start as rental properties are not as they may seem. For example, the layout of a property could be the difference between getting a good rental income and a bad rental income. 

  • Rural areas

The rural property market can go either way, like with other aspects of the property market. However, as many cities are now developing more environmentally friendly infrastructure, investing in rural areas may not be advisable as more money is being pumped into inner cities as opposed to rural areas. 

You may find that modern advances take a while to filter through to rural areas. Areas of natural beauty are still worth investment, but you have to make sure that you are getting a good deal in the first place and you are not just relying on the look of the rural location.

Things to invest in:

  • High end/luxury

High end and luxury properties are in demand because they often offer the latest in technology and are very environmentally friendly. This is a huge selling point and is very popular amongst buyers. Investing in this market can prove to be very beneficial because the property prices will remain stable and could in fact increase. 

  • Flats/apartments

Flats or serviced apartments are popular in inner cities and the demand for high spec properties has never been more sought after. Some modern apartments even have electric charging points underneath of the buildings which give this form of living loads of positives and very few negatives.

  • Renovation projects

If you can buy a property cheaply enough and you have good planning and preparation skills, you may find it beneficial to renovate a property relatively cheaply and be able to sell it at the maximum price. Again, as above, the location and what you buy are very important so that you don’t have a poor investment, but if you buy well, this is one area that is recommended for those that want to make money on their investment. 

Renovations can be done on a grand scale but this is risky as you are investing more money into the property. However, if it’s done well, investing more could in fact be beneficial. However, the safest renovation projects are those that can be undertaken by you as an individual, which means you are only buying materials. Alternatively, if you know someone that can help you to keep the costs down, this will make your renovation project a success. 

  • Buy land and build

The final property market to mention is probably the riskiest, but if done well it can be one of the best options. Buying a patch of land and designing and building your own property will give you the property of your dreams. The negative to this is that you may find yourself having a property that you like but doesn’t appeal to anyone else. 

If, however, you build a property that suits the masses, you could save a lot of money on the build and make money on the sale which will be regarded as a very good investment. Investing in self build properties is only advisable if you are extremely good at planning, good at sticking to a budget and have some experience in property building previously, as the risk of it going wrong is great so minimising that risk is crucial.

It’s clear to see that there are a number of ways to pick the right investment for you and avoid negative property markets this year. 

Rural Business Opportunities – To Buy or Lease?

Should you buy or lease? Most people are usually swayed by the opportunities rural communities bring to businesses. Some are looking to spend less, purchase multiple properties or pay fewer taxes. But it still boils down to deciding on whether to buy or lease a property. 

The problem associated with investing in a rural property is that extensive research and experience in real estate is needed because more risks are involved. So it’s important to understand the pros and cons associated with buying or leasing a rural property. Knowing this will help you make the right investment.

PROS OF BUYING

 LONG-TERM BUSINESS OPPORTUNITY. 

The increase in population growth and expansion leads to more developed land. Though there’s no guarantee, any rural property you buy could eventually increase in value as developers begin to buy up land. 

This provides you with the opportunity to own an investment property with consistent cash flow with an added opportunity of selling for large profits in the future. Rural areas also give you the opportunity to buy multiple properties and to build and expand your portfolio to make larger profits.

MORE CONTROL OVER YOUR PROPERTY

Buying land in a rural area gives you control over your affairs. You’re in control of the management decisions, whether it’s determining environmental farm plan practices, choosing the crop rotation or making improvements on the property. You don’t have to deal with land-rent contracts, rent renewals or terminations.

PROPERTY PRICES ARE SIGNIFICANTLY CHEAPER

In the rural areas, you can buy properties significantly cheaper than you would buy in an urban city. Outside the urban zones, most single rural properties usually have an average of one offer per property. This as a result of the lack of competition in rural zones and as this continues, the prices of properties get cheaper. 

In some scenarios where there’s an auction sale, there’s usually one interested buyer at court auctions. The average price usually ends up to be as low as half of what would be paid in an urban city.

CONS OF BUYING

FEWER PUBLIC SERVICE

Buying a rural property comes with its own challenges. A rural area doesn’t offer the same type or quality of service you will find in big urban cities. This discourages investors looking to buy a property to rent out due to the lower number of people migrating to rural areas.

SMALL SCALE ECONOMY AND MARKET

One thing for sure is that rural properties come with a level of risks. Economic opportunities are not easy to come by because finding a tenant or buyer for a property usually takes a long time. 

If you decide to lend money to buy a rural property, it is advisable to not rely on any revenue generated from the property to repay the loan. Instead, look at your purchase as a long term investment that won’t bring returns anytime soon. You should be prepared to wait for the return on investment.

POOR TOURIST ATTRACTION AND AMENITIES

Aside from houses for sale being cheaper, rural areas are more quiet and peaceful than the urban areas but it comes with a cost. The rural areas don’t have a culture of tourism, this is due to the lack of tourist attractions, the availability of fewer amenities and public services including its proximity from the urban areas. These challenges mean that you could have a low margin profit if you decide to use rural properties as Airbnb investments.

PROS OF LEASING

MORE PURCHASING OPPORTUNITIES 

When you don’t have tied up cash in land purchases, it will be easier for you to buy important equipment, livestock or crop inputs. This can even encourage your business growth and expand your production.

FLEXIBILITY IN BUSINESS

Leases usually involve a short term contract (up to only one year). This gives you the flexibility to change your business size or location by giving up previous leases or leasing other properties. For instance if you decide to move your business location in order to seek better economic opportunity, you can easily give up your old lease to lease another property in your preferred location.

ASSISTANCE MAY BE OFFERED

As a new or beginning farmers, getting a farm land on lease is the more affordable way to develop your farming business. Chances are your landlord (having previously farmed the land) may be willing to offer management skills or advice.

CONS OF LEASING

LESS ACCESS TO GOOD FACILITIES AND SERVICES

The quality of public services in the rural area is low compared to the urban regions. As a lessee, it will be difficult to find good resources and services to expand your business.

POOR SECURITY

Getting a property on lease in a rural area comes with some risks. Most rural areas are associated with poor security. If you rent a farmland that is not properly secured, your livestock or crops are likely to be stolen. 

POOR CASH FLOW

In most cases the people with higher spending power reside in the urban cities. The opportunity cost in a rural area is cash flow this is because when you choose to rent a property in a rural area there’s a trade-off between cheaper rent and having to transport your goods to the urban area when there’s a higher spending power.

BOTTOM LINE

Investing in a rural property can bring great opportunities to your business if as an investor you’re looking to invest in something different like commercial property investment and you’re willing to wait as long as is needed to gain a reasonable return on investment. If you choose to rent or buy a rural property, you should be able to live and deal with all the challenges that come with it. 

It will be very difficult to recover the money you invested as soon as you have made the purchase. Carry out extensive research before you decide to rent or buy a property. Find out any valuable information regarding the kind of property you are interested in. 

Are there regulations/restrictions that would affect your business? Who would your landlord be? Talk to your financial advisor or lender, consult with an experienced commercial property appraisal professional to get all the required information regarding marketing, lease and cost analysis.

How To Manage Your Investment Property

Looking to manage your own investment property? Good luck! We’re only joking, it certainly is possible to be successful in property management, but it is a hard venture and will take a lot of work. We’re here to spell out the reality of what it takes to manage your own investment property, and provide a few tips along the way. And, if at the end of this you are overwhelmed at the thought of it all, we have a final option for you. Let’s get started! 

Find tenants who will stay 

One of the hardest parts about managing investments is finding a tenant who will actually stay in the property. High tenant turnover has been known to put property investors out of business. Think about it; when you own a property, you’ll be paying not only the mortgage, but the property taxes, possible taxes for renting it out, maintenance costs, and any other costs associated like having a body corporate through Strata title administration. This means that if you don’t have a tenant in the house or flat, you’re losing out on the income that could help pay for all of this. 

Even if it’s only a month or two that you’re out of a tenant, this can cause a serious strain on your finances, especially if this is your second property or if you aren’t a large property investment company. This can be especially true for those with a holiday home management to worry about, as these tenants will often be short term and seasonal.  

Finding the right tenants takes some time and knowhow, but you can certainly follow some of these tips to get started. Remember to not only assess applications fairly, but to also present yourself as a fair landlord. Tenants will be assessing you just as much as you are assessing them.  

Adhere to landlord and tenant laws 

Landlord and tenancy laws are quite extensive in New Zealand, but will obviously vary depending on what country you live in. In New Zealand, your main port of call is the Residential Tenancies Act 1986. Essentially, this covers all the building, health and safety, and health requirements from a tenancy perspective. It’s absolutely vital that you are following the law, as there can be some serious consequences like fines and/or loss of your right to rent out your property. 

Other things to think about are tax laws and property laws. Inland Revenue in NZ has heaps of information on this, but it may be best to consult a professional if you are green in this area. Using a tax professional can help you determine how to complete your taxes and if you need to do anything differently. 

Complete rental appraisals and raise rent where appropriate

If you’ve ever lived in a rental longer term, you know that each year presents a possible rental increase. While frustrating as a tenant, these increases are often necessary for rental owners to implement. Property prices in certain areas can increase year over year, which means taxes can increase as well, so you’ll need to get that money from somewhere. 

Websites like the New Zealand government tenancy website, found here, is often a really good place to start for understanding the markets. While obviously this won’t be specific to your building or home, you’ll be able to understand what your area is renting or selling for. The next step would be to complete a proper rental appraisal for your specific property. Again, while your neighbour’s house may be right next door, it can have a totally different price on it than yours. You can attempt an appraisal on your own, or use a professional. 

To actually raise rent, always make sure to follow the guidelines set by NZ government. There are several requirements and conditions for raising rent, so you’ll want to make sure you are being fair and consistent.   

Stay on top of maintenance 

One of the more frustrating aspects of owning a property is dealing with all of the maintenance issues that can come out of it. It’s important to understand what your responsibilities are as a landlord, as well as what you can pass on to the tenant. Again, the NZ Government has some good guidelines for your responsibilities, found here

Besides your legal responsibilities, there’s also the tenancy relationship to keep in mind. Going back to the idea that long term tenants are better for you as an owner, you do want to keep up your end of the bargain by responding to maintenance requests timely as well as respecting their space and constraints. Here are some additional ways to maintain your relationship with tenants for the best outcomes on both sides. 

Use a qualified residential property management company

Yes, we had to sneak this one in for those of you who are exhausted already just looking at this list. Using a property management company to let your home is not giving up, it’s understanding that you may not have the time or the effort or even the knowhow to do it yourself. The best real estate investments are ones that can essentially run themselves, but we all know this doesn’t always happen. 

When thinking about doing it yourself versus hiring a property management company, have a think about some basic logistics first. Do you live near the property and do you have the time to attend to emergency maintenance requests or lockouts? Are you confident in hands on management, i.e. fixing plumbing or basic repairs? On the other hand, also consider your own finances and if affording a property manager will make sense for your bottom line. 

We hope this has given you a clearer picture of what it actually means to manage your investment property. This is certainly not for everyone, and you may find it easy to simply pass it on to a property manager right at the beginning. However, it’s always worth a think, and you’ll be glad you did your research and took the time to consider the best option for you in the end. Best of luck! 

Alternative to bank deposit?

A property syndicate pools money from individual investors to buy property and share the rental income. Syndicates are set up through a formal legal structure. Investors usually buy “units” or “shares” in the property.

NZ Housing Shortage And What It Means For Buyers

It’s been more than 10 years now that the real estate prices are shooting up at a dramatic rate in New Zealand. This is particularly true of Auckland where the number of newly constructed buildings are far from meeting the rise in population.

In the largest urban area of the country, the average price of a house was around  $916,900.00 last year, up 2.2% from the previous year. Since 2010, the number of homes for sale in the city has actually dropped by 58%, which has pushed up the average price by 88%.

But for buyers, the shortage situation can also land some incredible opportunities. In this article, we tell you what you need to know about the housing shortage in New Zealand and what it means for buyers.

Demographic growth and housing shortage

According to a recent report by the Organisation for Economic Co-operation and Development (OECD), a major factor for pushing up housing prices in New Zealand is the high level of immigration, especially since 2012. New Zealand has been facing skill shortages for the past few years and implemented schemes to attract a qualified workforce, preferably young, who have the skills and the financial means to invest, a good knowledge of English, and can easily fill an available job.

For the New Zealand government, immigration is above all a means to ensure the development and competitiveness of the national economy. As a consequence, legal immigrants make up the bulk of immigration flows, and Illegal immigration is limited. That’s also because of the insular nature of the territory, which facilitates the control of population movements. But the problem is that the housing supply did not follow, and New Zealand is not able to house its newcomers anymore —who usually want to settle in Auckland. But even outside of Auckland, prices have been soaring, even in the apparent absence of strong population growth.

The roots of the lack of housing supply

For some experts, the explanation is simple. The construction sector just can’t catch up. The supply response is highly constrained by restrictive and complex town planning rules. The governance of land use is marked by a number of rules, from land clearance to environmental standards. The administrative hassles are so numerous for real estate companies, estate agents and builders that many of them are deterred to develop housing projects.

The construction sector has also been pulled down by insufficient working capacity. Selected immigration has partly solved the skill shortage crisis in New Zealand, but it has increased the need for unskilled workers to provide them with housing. The construction industry does not have enough skilled workers to meet the demand, hampering any rapid progress and considerably increasing the cost of construction. Moreover, since the early 1990s, the supply of new homes moved from low-cost housing to high-end real estate, became less and less affordable.

The failure of housing policies

Some say the housing shortage in New Zealand will be the demise of the Labour Coalition, who have failed to solve it adequately despite making it a high priority. In 2018, the government passed a law prohibiting foreigners from buying residential properties. The law provided that non-resident investors, i.e. people who are neither New Zealand citizens or permanent residents in New Zealand, will not be able to purchase existing homes or other residential land. The provisions remain different for commercial property investment.

Expected to stop the hike in real estate prices, the reform really aimed at preventing investors living abroad, especially in China, from buying homes in New Zealand… The housing shortage was attributed to the growing property appetite of foreign investors with a higher purchasing power than New Zealanders. But some figures show that foreign investors make only 3% of the investors… 

This reform was also supposed to leave more opportunities for the local Kiwis, but it didn’t. New Zealand house prices are still among the highest in the world. The average home price in Auckland is the seventh highest in the world, while Christchurch and Wellington are also considered “severely unaffordable” by the Demographia International Housing Affordability Survey of 2019.

At the same time, the Labour coalition government also launched the KiwiBuild scheme aimed at building 100,000 homes over 10 years. 1,000 were scheduled for the first year, but only 47 were built early 2019. The Housing Minister already had to take a step back and admit that the government won’t meet the target. Some critics also noticed that these houses were actually way more expensive than the average!

The persistence of buying opportunities

These reforms barely impact the numerous kiwis who wish to buy a house or apartment as a pied-à-terre. Each investment project is different in New Zealand, depending on the reason for the purchase of a property and a first home mortgage. For buyers who are looking for quick bucks, the situation can look pretty bright. In light of the housing shortage, getting buyers at a later stage or renting your flat will not be an issue!

For those who have a limited budget, it will be easier in low-density areas. The coastal areas and the low-populated hinterlands are beautiful regions with amazing nature and transport infrastructure. The demand for long-term property is low, but it can be an opportunity for investing in tourists rentals or simply for a secondary home. Property lawyers can help you with that. A house on the Lake Taupo or a flat in Queenstown to capitalize the skiing season are key investments. 

For a buyer who wants to get regular rental incomes and mid-term or long-term capital gains, it’s advised to invest in student flat in city centres, where most educational institutions are located, and where the prices are climbing the fastest. Even though the prices are already very high, a flat in the centre of Auckland could be a great and easy investment as the management can be given to rental agencies. Trust lawyers can help you set up a partnership.