The One True Investment

There appears to be two separate real estate markets operating at the moment, driven by several small but significant factors.

In the low to mid-priced market there has been an upsurge in prices; while at the top end an over-supply is pushing prices down.

I believe that the rental market is the barometer of the real estate market.  When you see rents going up, you can count on house prices following three to six months later.  Conversely when there is a glut of rental houses, prices go down.

We are seeing significant numbers of Kiwis returning to NZ.  Some people having spent five to ten years in the UK and Europe have become sufficiently unsettled by financial and job uncertainties to retun home – often now with families.  They have added to an already high number of people seeking rentals.    Also, tenants are not vacating homes seasonally as they used to do; fearing they may face higher rents.  This rental competition leads to more people considering purchasing their homes, taking advantage of the low interest rates which are as good as any in the last 40 years.  With little stock out there though, the choice is narrow.

A lot of small investors are coming back into the market, attracted by the high rents and low interest rates.  So, many little influences going on – but it’s all postiive for vendors!

Conversely, there seems to be a glut developing at the high-end.  People are downsizing, not upsizing but there’s no denying, there’s an underlying shortage of houses for sale, and banks are not going to be providing financial assistance to developers any time soon.

To those weighing up property investment versus share investment or savings schemes, I suggest you look at the record of property prices over the years.  In my 48 years in real estate I have seen homes sold for the pound equivalent of $7,000-$8,000 now selling for $400,000.  Come forward another 20 years and homes that sold for $50,000 are also selling for $400,000.  Even something bought 20 years ago for $100,000 is fetching $400,000.

Clearly buying a second property for the long term (that is for 20-30 years), is your only real guarantee of a retirement income.

So, make it a priority to reduce or quit your mortgage, invest in a retirement income through a second property, shun the volatile sharemarket and be very wary of savings schemes and retirement insurance where everybody ‘clips the ticket’ before you get your share.  Where is the return in that?