Has anyone witnessed firsthand a property price bubble? What does it look like?

[JBM]

I don't think its just a local issue >>> but

Qutown/Wanaka has a history of BOOM BUST.. seeing asking prices of over $1k per sqm for a tiny slab of land > 20min+ drive from CBD small tourist focused townships (#1-risk if tourism drops off etc) stupidly high rent just so investors can break even >>

I see major pressure points coming to a head >> esp if rates head higher

Incomes for the mass of residential population locally is either tourism based or property based- tradies RE agents etc .. now these same workers are biggest buyers / owners of recently purchased property at very high levels generally ... I've heard debt 500k-800k+ is quite common for 30-50yr couples etc here

I'd say the average worker and esp. families are really struggling with finances.. I really don't know how many keep their heads above water

I've got a family of four debt-free home in the central Otago area and better than average income ...and we don't have much free cash floating around after basic weekly expenses..

Now while property is booming and tradies can charge an arm and leg for any work.. thats not going to last forever..

Just like historically LOW rates 4-5% fine only $400-$600pw just to cover interest on loans for many.. will these last forever??

I see many 4-5 story apartment blocks going up at every corner of the township .. one could see an overdevelopment of small units/apartments ..

I think its all like a game of Jenga .. every Qtr stack another block to the tower .. how high will it go before it falls over and investors pull out of spec apartments in turn bankrupting developers in turn leaving tradies out of pocket in turn forcing sales of homes add in GFC 2 and it starts looking very BEARISH on an investment case for capital growth then you have buyings sitting on their hands prices fall banks call in loans or don't refinace >>

[Ellie]

I've had first hand experience - both good and bad. But my housing experience was in the UK.

The Bad.
A few years after Labour were elected there was a mini property boom. Banks offered 100% interest free loans & 30 yr terms.
In 2003 (divorced with one income), I took advantage of that offer & purchased a property at the max I could afford.

Sadly, within 2 yrs my house was worth less than my purchase price but by that time I had made significant improvements. I clung on hoping that I could, at least, get back the money invested, but that never happened. People were too scared to invest and banks were severely restricted on lending. The only people buying seemed to be property investors buying up the cheap homes for the rental market.

In 2014, after a decision to move to NZ, my home went on the market. The sale process in England is entirely different to NZ and it took over a year to sell my home. After deducting home improvement costs, after 11 years, I gained just $30k. Nowhere near enough to use as a deposit on another property, either in the UK or in NZ.

I am now considering buying my first NZ home before I end up retired and homeless. It's damn difficult.
I got a job in Wellington where buying solo was impossible & even though I'm now in Dunedin, I face a market that has almost doubled in price. I'm nervous of getting into negative equity again but on the other hand, I don't want to be 65 and renting...

[GLin]

Or he could make a profit...

Not when he's selling right now.

Even if he holds them for 10 years, there's no guarantee...

There are lots of cheap older apartments in GC...

[Davo36]

Or he could make a profit...

[GLin]

Made millions, and then (potentially?) lost $700k.

Not a totally bad outcome.

The apartments aren't sold yet, so the losses could be bigger.

[flyernzl]

Made millions, and then (potentially?) lost $700k.

Not a totally bad outcome.

[Beano]

Luck in Ak rather than skill it seems.
People often confuse luck with skill to their detriment.

Correct
Luck in a rising market , skill in a falling market .

Jack thought he was skilled but he was just lucky he went in the market when the market was on the rise.
Eventually luck runs out and skill needs to take its place to constantly succeed

[GLin]

Luck in Ak rather than skill it seems.
People often confuse luck with skill to their detriment.

When luck runs out, their lack of education, skills, and the right strategy end up costing them.

[Wayne]

A recent story I heard from a friend, about an investor in Auckland.

He, nicked name Jack, was a successful businessman with two vegetable shops in Auckland that he later sold.

Jack then began buying houses, then sell 2-3 years later, making millions.

In the last two years, following advice from a prominent Auckland real estate agent, bought 7 or so off the plan apartments in Gold Coast.

Unfortunately each apartment has dropped probably $100k each... potentially $700k+ loss on his investments.

My source is from the Gold Coast real estate agent that is selling his apartments...

Luck in Ak rather than skill it seems.
People often confuse luck with skill to their detriment.

[GLin]

A recent story I heard from a friend, about an investor in Auckland.

He, nicked name Jack, was a successful businessman with two vegetable shops in Auckland that he later sold.

Jack then began buying houses, then sell 2-3 years later, making millions.

In the last two years, following advice from a prominent Auckland real estate agent, bought 7 or so off the plan apartments in Gold Coast.

Unfortunately each apartment has dropped probably $100k each... potentially $700k+ loss on his investments.

My source is from the Gold Coast real estate agent that is selling his apartments...

[Chris W]

Well as we know NZ hasn't had a widespread property bubble burst as of yet .. but living and dealing with property in Queenstown during 2009-10 I did see some investors and Larger developers go belly up .... People paying deposits for 300-400k sections year earlier etc to then see the values crash into the 200's (during 2010 talking with R.E agent at a wedding he stated he could get me a whole street for 175k or even less)

Apartments that sold for a 700K+ couple years earlier selling at Mortgagee auction for as low as $350k

Now of course during this time other properties in the resort town weren't as negatively affect and flatlined over the time or had slight pullbacks in bubble prices ..family homes in good areas etc

But it did show the endless growth speculation can hit a wall and affect those over-leveraged .. many big time developers went bankrupt during that time.

we are certainly heading to that place again in QT where over a short period of time values will crash on the back of overleveraged developers being forced to liquidate by the lenders

Thank you JBM for sharing your observations and thoughts.

What are the indicators / behaviours that you are currently seeing in Queenstown that make you believe that property prices in Queenstown are toppy again?

[JBM]

Well as we know NZ hasn't had a widespread property bubble burst as of yet .. but living and dealing with property in Queenstown during 2009-10 I did see some investors and Larger developers go belly up .... People paying deposits for 300-400k sections year earlier etc to then see the values crash into the 200's (during 2010 talking with R.E agent at a wedding he stated he could get me a whole street for 175k or even less)

Apartments that sold for a 700K+ couple years earlier selling at Mortgagee auction for as low as $350k

Now of course during this time other properties in the resort town weren't as negatively affect and flatlined over the time or had slight pullbacks in bubble prices ..family homes in good areas etc

But it did show the endless growth speculation can hit a wall and affect those over-leveraged .. many big time developers went bankrupt during that time.

we are certainly heading to that place again in QT where over a short period of time values will crash on the back of overleveraged developers being forced to liquidate by the lenders

[flyernzl]

Having been to Ireland, looked at how things panned out and spoken to some of the people involved, there is one piece of good news.

Most residential property owners and almost all residential landlords were largely unaffected by the crash. Even those who achieved negative equity came through provided they kept up the payments on the property (Banks were remarkably unkeen to foreclose, for obvious reasons)

The pain was inflicted pretty much entirely on the developers and the finance providers (and through them on savers).

So to blame buyers/investors/speculators (as politicians usually try to do) is erroneous.

So

[Davo36]

I think Chris W has made some good points, albeit in quite a long-form way.

Chris W, you're wasting your time trying to convince Bob Kane of anything, his mind is firmly closed.

December's sales figures for houses in Auckland were very low, will be interesting to see what the January figures are like.

[Bob Kane]

The purpose of this thread is to learn lessons from past property bubbles from those that experienced it firsthand.

We're trying to pass on our experiences to you as we've been through several cycles.
You don't seem to like what we say.
You are even challenging that there is a shortage in Auckland.
Why have Auckland house prices stayed up?