Auckland house prices almost double in 9 years

[casacamo]

Is there any special reason for this wonderful increase?
Or have all the houses in your street performed this way?

We brought in an less desireable area compared to surrounding neighbourhoods, where at least 50% of the homes were rented or ex state. A lot of these have now been sub-divided and new townhouses built in their place, and prices are now on a par with surrounding areas.
We brought one of the worst houses in the street (it had been two flats) and have spent about 50k doing it up over 7 yrs. and then put a second residential unit at the back, (100k) which is occupied by a family member.
Most likely 50% of the increase is due tho being in the right place at the right time, but the other 50% is due to hard work & sacrifice.
This is the same strategy we have been appling to our investment properties and so far it seems to be working.

[Realtorman]

Realtorman, how short-sighted are you?

You don't think property value can fall as well as rise?

Do you know what happened in the UK in the late 80's?

Of course house prices can fall. My point is that long term the trend is ever upwards.
If house prices fell in the UK in the late 80's the only ones to loose were those that crystalized their losses and sold. How do those same homes now value on todays market for those that held. I belive they may have incresed in value several times over.
Of course this is only inflation at work but who looses here. It is the Banks holding the mortgage. The PI gains by huge increases in equity and rent value thus enabling them to gear up and buy more property.
In NZ we are even better off as at present we have no capital gains tax although the Nanny state is about to weild a big stick here me thinks.

[tricky]

Hi Casacamo,
Is there any special reason for this wonderful increase?
Or have all the houses in your street performed this way?

[casacamo]

our PPOR has gone from 310K (1997 CV) to 1,200,000 (2007 QV) thats x4 in just 10 yrs.

[k1w1]

Realtorman, how short-sighted are you?

You don't think property value can fall as well as rise?

Do you know what happened in the UK in the late 80's?

As for this comment: "There are still plenty of investors in Sydney and Melbourne and London and cities that have sub 3% average gross yields for the reasons that Cube states as many people need somewhere to put their money."

That's true to an extent, but the UK, for one, does not have 8% earning potential at the bank.

3% (if you're lucky) yield from rents with the hope of capital gain when many are predicting the top of the market has arrived is somewhat risky when risk-free earnings like 8% are available at your local Westpac.

[spurner]

With all the new council and government regulations covering construction materials and methods, building levies, service fees, increasing standards, reserve contribution levies and a plethora of other additional costs which have been imposed since Labour came to power I think the real cost and therefore value of propeties are about where they should be. Also remembering that during this time they have undertaken many projects to limit the supply of housing and simultaneously increased the demand through an array of new initiatives.

Basically, that a large amount of the house price increases are based upon actual costs incurred during the process of creating the house.

[Gatekeeper]

Why would the bubble burst. We may get a blip when prices hold or drop slightly but the trend is ever upwards. Why? Simple economics, at a 7% yield prices double every 10 years. The rule of 75. Would you put money in the bank and expect it not to grow by way of interest? Why are people so naieve to expect property does not behave in the same way. We can all think back many years to when properties were a fraction of the price they are today and even then we thought they were expensive and people were saying the prices were getting out of hand but the rule of compounding growth marches on. The factor that drives house prices is demand and affordability. NZ is a sparsly populated country and by word standards our houses are still cheap. Why would the growth not continue?

This works both ways. If you create money out of thin air (monetary inflation) to bid up house prices, down the line somewhere cost price inflation will bite you on the arse. This is yet to come. The house still has the same value, your money has devalued!

[Realtorman]

Why would the bubble burst. We may get a blip when prices hold or drop slightly but the trend is ever upwards. Why? Simple economics, at a 7% yield prices double every 10 years. The rule of 75. Would you put money in the bank and expect it not to grow by way of interest? Why are people so naieve to expect property does not behave in the same way. We can all think back many years to when properties were a fraction of the price they are today and even then we thought they were expensive and people were saying the prices were getting out of hand but the rule of compounding growth marches on. The factor that drives house prices is demand and affordability. NZ is a sparsly populated country and by word standards our houses are still cheap. Why would the growth not continue?

[SuperDad]

Thanks Olly.

Paul.

[OllyN]

Will the bubble burst?

Superdad- I sincerely hope that what I predicted is wrong
and nothing bad happens. I too have properties, mortgages, personal guarantees etc .
I've been burnt before and it's not a nice place to be.
Although I have predicted a property bust, I will be the first to cheer if it never happens.
If it doesn't happen we will be laughing all the way to the bank in 10 years time.
Olly

[SuperDad]

Olly,

What are your views on the future growth for residential property (over the next, say, 10 years)

Do you still think that the bubble will burst? (Your book on this topic is one of the causes of my conservative approach - I'd like to plan for the worst, and be happy if it does not occur.)

Paul.

[David_W]

There are still plenty of investors in Sydney and Melbourne and London and cities that have sub 3% average gross yields for the reasons that Cube states as many people need somewhere to put their money.

You here in PT has been burned a bit with some shares like me on the share market. The lack of control of your investment with shares, the lack of return for many other equity and debt securities (eg term deposit, bonds, managed funds) means property is the chosen asset. And surveys show investors buy close to where they live in general (yes thousands of exceptions, but millions follow that generalisation).

So look forward to massive capital growth particularly in our country's economic hub and driving force that is the wonderful city of Auckland. Wealthy migrants are coming over and more wealthy will continue to come and buy property.

For those that know Auckland a 21 year old student and client of mine purchased a proeprty in Victoria Avenue, Remuera, Auckland for $1.8 million. (As you do when you are a student). Even better he did not like the home, so he sold it for $50,000 to get shipped off teh site and built a $2.4 million state of the art mansion that directly employed over 80 taxpaying new zealanders. That money all came from China. We live in exciting times friends.

Carpe diem - get investing. Vote out Labour next election for some economic reform, and expect your Auckland properties to double in less than 10 years

[cube]

Why would investors buy for a 3% yield.

Ask Sydney!

For the prospect of capital gains.
For the prospect of passive income in the future, when rents have risen and the mortgage is paid off.
For the tax 'benefits' (spend a $ to save 39c!)

In other times of high rents relative to wages, more people live in the same space, increasing wear and tear. The govt responds by either imposing rent controls (investors flee, rents rise) or increasing benefits (tenants want to spread out away from the extended family in cramped conditions, requiring more houses - rents rise!).

cube

[Propoholic]

In the last ~30 years peak to peak periods have been:-
1974 - 1981 - 1987 - 1997 - 2007

[SuperDad]

That will only be true if the entire baby boomer generation drop dead in the next 4 years Paul. A near doubling again in way under ten years is my prediction.

I prefer to plan conservatively, and have a pleasent surprise.

I know that you buy into Ron's "baby boomer" hypothesis. I don't. I think the thesis about population growth is plausible, although by no means a certainty. I do not think that it follows from this that property prices will double much quicker than the historical average (of around 10 years).

Say we do get a lot of imports from overseas. They will not (as Ron acknowledges) be from first-world countries. So it is likely that they won't be flush with cash - they won't be directly forcing house prices up. Instead, they will be renting.

So who will be buying up the properties at such values that would create and sustain the "boom of all booms"? It won't be the immigrants. It won't be the baby boomers, who will likely be selling down their holdings to fund retirement. And the "average" kiwi is already starting to be priced out of the housing market as a result of this boom, and the fact that wages are not increasing particularly fast.

So, who is left to fuel the boom? Investors, of course, looking to buy up accomodation to house the influx of the predicted immigrant labour. However, if wages don't radically increase, thereby supporting a 100% increase in rents, a 100% increase in house prices would represent a radical reduction in rental yields, which are already poor. Why would investors buy for a 3% yield. If the investors leave the market, then who is left to fuel the boom? Dean and Ron?

So I am being as agressive as I can, given conservative expectations about future growth.

Paul.