The NZ property market is turning – now what?


In recent weeks, The New Zealand Herald and others have revealed that the property market seems to be plateauing. It’s becoming a “buyer’s market” in Auckland (which just had its quietest July in seven years) while Christchurch “leads the way” in the cooling house market trend. 

For Cantabrians, rents increased more than 41 per cent between 2010 and 2015 (and 78 per cent of renters could not afford to buy), so a slowing market benefits potential owners but will put a slight dampener on the success of property investors.

The property market always goes up and down in waves, and in Christchurch we’ve seen a slow decline throughout the last year or so. Once the rest of the country finally catches up, the market should level out nationwide (rather than seeing a “bubble burst”, as it were).

Given that it soon may not be ideal to sell, property investors should use this downtime wisely. We've seen a lot of property owners successfully pivot to a short-term rental model (AirBnb, property managers, and the like) instead of trying to go on the open market. Any market turn is prime for getting yourself an education: you can use it to see what kinds of properties and locations survive (or even thrive) through tough economic situations.

Importantly, you can look at others’ misfires and see which property types end up as bad investments that they must begrudgingly hold on to. 

Traditionally, property stayed strong during any economic downtown while other assets struggled. That wasn’t the case after the 2008 financial crisis, however, and while many property owners have learned good lessons in the last decade, some have repeated the same behaviour that caused the crisis in the first place. That is, over-paying, over-leveraging, and over-indulging because you think the mantra “safe as houses” still applies.

It doesn’t. So before tough times really begin, revisit your property strategy. Reposition your leverage level, fix low mortgage rates with the bank, and reset your minimum cash reserve. If you have cash and you're unsure what to do with it, you may want to consider a low-free mutual index fund to ride you out. 

Being in the property market means always having contingency plans, and the best investors have them in place well before they’ll ever need them.

Marshall Suckling