I've been planning to write this post for a while. They hype about property prices going up and down and the panic about the market crashing makes very interesting reading, but it is something that is of secondary concern for "buy and hold" investors with cash flow positive portfolios. To those who are not planning to sell their properties n the next 1-3 years, or ever, the property prices in the short term mean nothing except paper wealth that comes and goes (provided of course their do not collapse enough to make the bank freak out).
People in this category care only about the following things (i think):
So, the question that occupies my mind is - what needs to happen to make investors in this category worry? What needs to happen to the NZ economy for demand for rental property to drop significantly? What can make the market rents collapse? What can cause interest rates to increase significantly?
Predicting interest rates is hard, and there is an extensive discussion in the Interest Rate thread on this forum. But i have not seen any discussion about the risks f the bottom falling out of the rental market both in terms of demand and rent levels. How likely is that? What could cause it? Labour seems to be promising to build 50000 homes. If all of them were built in Wellington and are made available for rent, then i think there is a serious risk of a crash in the rental market. Is this the sort of thing we need to worry about?
The other item often mentioned as a big concern for NZ economy (and therefore the market's ability to pay rents) is foot and mouth disease. Our exports grind to a halt and suddenly there is no money in the economy, and no one can afford to pay rent. While this is not an impossible scenario, the only thing i can think of is that if it did really happen, then we would see the reserve bank very quickly drop the OCR to 0% or near 0% which should offset any rent reductions we will need to accept in order to keep tenants renting our properties (people will still be renting as they need a roof over their heads).
What other risks are out there?
People in this category care only about the following things (i think):
- Interest rates;
- Demand for rental property; and
- Level of rent that can be charged.
So, the question that occupies my mind is - what needs to happen to make investors in this category worry? What needs to happen to the NZ economy for demand for rental property to drop significantly? What can make the market rents collapse? What can cause interest rates to increase significantly?
Predicting interest rates is hard, and there is an extensive discussion in the Interest Rate thread on this forum. But i have not seen any discussion about the risks f the bottom falling out of the rental market both in terms of demand and rent levels. How likely is that? What could cause it? Labour seems to be promising to build 50000 homes. If all of them were built in Wellington and are made available for rent, then i think there is a serious risk of a crash in the rental market. Is this the sort of thing we need to worry about?
The other item often mentioned as a big concern for NZ economy (and therefore the market's ability to pay rents) is foot and mouth disease. Our exports grind to a halt and suddenly there is no money in the economy, and no one can afford to pay rent. While this is not an impossible scenario, the only thing i can think of is that if it did really happen, then we would see the reserve bank very quickly drop the OCR to 0% or near 0% which should offset any rent reductions we will need to accept in order to keep tenants renting our properties (people will still be renting as they need a roof over their heads).
What other risks are out there?
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