Investing in Property – is it a good idea?
In New Zealand property has always been seen as a ‘safe’ investment and in general this has proven to be true. Looking at the New Zealand House price index since 1992 we see prices double every 11 years or have 6.5% growth rate on average. As well as this, when investment property is cashflow positive you get an income from rent too.
So I think investing in property is a good idea generally, particularly for the longer term in areas with good jobs and population growth. Over a longer term property almost always increases in value; so does rent so this will provide you with cash flow sooner or later. Property prices in NZ are increasing in most areas at the moment with a lot of investment interest. There has been a marked increase in immigration over the past year which has pushed prices up with more people looking for property to buy and rent, and this level of immigration inflow is set to continue. Interest rates are historically low and are expected to stay low for some time.
There is uncertainty with economists trying to predict what conditions will prevail in the future because of weakness and volatility in international markets. This of course can have an effect on any type of investment, so it’s best to spread your risk and invest in different areas and asset classes. There are predictions that the Reserve Bank will impose further lending restrictions later this year to curb property price inflation. This may be an income to debt ratio, or higher level of deposit required for investment property. At this stage however, you need 30% deposit to purchase in Auckland, whereas there are no restrictions for investors in the rest of the country that differ from owner occupier buyers, (except for overseas buyers), however banks give priority for low deposit loans to first home buyers and owner occupiers.
With the recent changes in credit criteria for overseas buyers by ANZ, Westpac and BNZ, inevitably Doom and Gloom articles begin to appear. These have merit – it’s always worth considering the possibilities of the housing market bubble bursting.