Anyone know why Wellington has stalled?

[SleepyTiger]

We're looking for a PPOR after returning from Australia. I'm astounded at how few houses are being listed currently....the last three houses we bid for had 20-30 tenders. If it stays like this I don't expect prices to remain static for long.

I actually always thought of this too, but then I found that's actually very unique to Wellington. ..it's been like this for the past 7 years. Very small amount of good quality homes are out there - and as soon as they come out it's dog fight, but there are also plenty of houses that no one really wants or willing to pay premium , sits on a cliff, cold and damp, crap section, crap access etc. etc.

[Eugene]

How's this, so cute
Only in Wellington...

http://www.stuff.co.nz/business/better-business/73889931/wellingtons-newlook-laneways-are-making-melbourne-sit-up-and-take-notice

[Eugene]

I am new and haven't gone through the cycles so you guys definitely know more than me. But Graeme and Wayne, to me I see a difference in relying on capital growth for survival in property investment vs relying on capital growth in making massive gain. There is no doubt that ignoring yield and hoping for capital gain is extremely risky, but isn't it quite safe to a cashflow neutral profile in a city combined with sufficient equity?

Also, when comparing property investment with business: good properties in good areas with solid growth history - can you not view it as a successful product (well designed e.g. town planning, good fundamentals e.g. material and build quality, with track record of strong demand), that has been built by someone else already? And you are simply taking advantage of the established product?

Wouldn't you say rental yield growth and capital growth also goes hand in hand? They both indicate good strong demand?

I am not against cash flow focus at all, but I really want to understand why it has to be one extreme and taking capital growth into account is such a risking thing.

I really like this explanation and distinction

[Wayne]

I am not against cash flow focus at all, but I really want to understand why it has to be one extreme and taking capital growth into account is such a risking thing.

It only has to be one or the other for idealogues.
Yield provides you with the money to pay the mortgage and other bills - capital gain doesn't do that.
I don't think Graeme is saying that CG doesn't matter at all - no point in having cash coming in on a property that is becoming worthless. There would be a reason its value is eroding so much and that would probably reflect back into its ability to provide cash (shrinking town population leads to shrinking tenant pool).
What he is trying to high-light is the mantra from many that CG trumps yield. Some people invest solely for CG and any yield is a bit of icing - that can be a slippery slope.
So the primary motivation should be yield - banks like to see that you can pay the bills. You may get 50% LVR but if you don't have enough cash (income) your investing will stall.
CG helps but can be a fickle beast.

[Eugene]

I actually always thought of this too, but then I found that's actually very unique to Wellington. ..it's been like this for the past 7 years. Very small amount of good quality homes are out there - and as soon as they come out it's dog fight, but there are also plenty of houses that no one really wants or willing to pay premium , sits on a cliff, cold and damp, crap section, crap access etc. etc.

True
I go and look at very few houses, I browse through Trademe from time to time, then suddenly wow there's something in our niche.
We are not supposed to be buying any more, own goals, but are now settling on another in January.
And new bank seems ok with us growing.
Horrible seeing these opportunities and being unable to resist

[Eugene]

It only has to be one or the other for idealogues.
Yield provides you with the money to pay the mortgage and other bills - capital gain doesn't do that.
I don't think Graeme is saying that CG doesn't matter at all - no point in having cash coming in on a property that is becoming worthless. There would be a reason its value is eroding so much and that would probably reflect back into its ability to provide cash (shrinking town population leads to shrinking tenant pool).
What he is trying to high-light is the mantra from many that CG trumps yield. Some people invest solely for CG and any yield is a bit of icing - that can be a slippery slope.
So the primary motivation should be yield - banks like to see that you can pay the bills. You may get 50% LVR but if you don't have enough cash (income) your investing will stall.
CG helps but can be a fickle beast.

Like this explanation too, thanks

[propertybuyingNZ]

With shares (for example), while you are certainly affected by market forces you can improve your chances of capital growth by choosing to invest in companies that have good potential for improving profits and/or are investing into the growth of the company (rather than focussing on distributing profit to shareholders via dividends).

dont want to stir stuff up here, but I never really understood this argument in the share vs property discussions.

You are obviously going to buy (trying to buy) properties what are good investments (ie: has scope to grow and give you rental income too) very same way as you buy shares where you expect growth and dividend. You are not into dodgy property deals, neither dodgy shares, so this piece of argument does not hold up much.

[Wayne]

This opinion piece gave a fair overview I felt

http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=11543122

[PTILoveYou]

Until someone who invests in shares can demonstrate with numbers that they have achieved from 6 digit sums to multi 7 digit sums in 5 years or less, I'm not convinced on shares.

[propertybuyingNZ]

I actually always thought of this too, but then I found that's actually very unique to Wellington. ..it's been like this for the past 7 years. Very small amount of good quality homes are out there - and as soon as they come out it's dog fight, but there are also plenty of houses that no one really wants or willing to pay premium , sits on a cliff, cold and damp, crap section, crap access etc. etc.

same time last year there were over 1000 listings in the Wellington area, now it is barely reaching 800, some change is going on for sure

[Wayne]

Until someone who invests in shares can demonstrate with numbers that they have achieved from 6 digit sums to multi 7 digit sums in 5 years or less, I'm not convinced on shares.

Even you can't think the current run in Auckland is normal!

[PTILoveYou]

Even you can't think the current run in Auckland is normal!

I think each cycle is unique by itself, so nothing is normal!

[orion]

Yield provides you with the money to pay the mortgage and other bills - capital gain doesn't do that.
I don't think Graeme is saying that CG doesn't matter at all - no point in having cash coming in on a property that is becoming worthless. There would be a reason its value is eroding so much and that would probably reflect back into its ability to provide cash (shrinking town population leads to shrinking tenant pool).
What he is trying to high-light is the mantra from many that CG trumps yield. Some people invest solely for CG and any yield is a bit of icing - that can be a slippery slope.
So the primary motivation should be yield - banks like to see that you can pay the bills. You may get 50% LVR but if you don't have enough cash (income) your investing will stall.
CG helps but can be a fickle beast.

Yes kind of Wayne, and interesting thoughts too One Step Closer.

For me once I buy a property and either it's financed at 80% or 100% borrowing, I don't ever refinance it again.
So whether the property goes up in value 20% or 200% over the next few years it doesn't matter as I don't use that equity to borrow against for future purchases.
People that do (and are usually also on interest only) 95% of the time use that as their strategy, in other words refinance when prices go up, therefore not ever reducing their overall debt to equity ratio. This leaves them dangerously exposed for when the market does turn downwards, and then people like me come in and buy them at a discounted rate.

Last year out of the 20 properties I bought to hold in the new trust, most were from investors that paid $160 - $195k for properties within the last 10 years and I was buying them for $100k - $145k.
My best buy was a property for $90,500 including finders fee for a property that the previous owner paid $175,000 for 8 years before.
Most of these investors are the type that use interest only and think they will do really well because market price always goes up, so all they need to do is sit and wait. When it doesn't they get out altogether and think property is a bad investment.
So it's good for people like me to go in and buy them cheap, however if they went in to property investing with better rules and a sound strategy, they wouldn't need to sell at all. They would do really well if they hung in there and allowed the tenants to pay the properties off for them, rather than the debt just sitting there.

Any price increase to me is kind of bonus only in that it increases my networth and that may have a good feeling to me in that way, but it doesn't give me anymore cashflow, and I certainly don't increase my borrowings again because the prices may have gone up.

[Lego_Squared]

Until someone who invests in shares can demonstrate with numbers that they have achieved from 6 digit sums to multi 7 digit sums in 5 years or less, I'm not convinced on shares.

Share investing can take more, or less, skill than property investing. The psychology of shares is more brutal given that the mark-to-market value is constantly in your face, but various strategies can overlap with how you would look at property.

But simply, leverage is generally why property is the better investment. You could consider that exogenous, or part of the asset class.

[kiwibean]

I have seen prices increase substantially recently in the northern suburbs especially around the Porirua area. Many places I have seen are going for around 100k more than the GV. For example a property on my street (Titahi Bay) was valued at $315k but recently sold for $400k, I know of many that have sold for that increase. I am not sure about the city as have not invested in there but out north things are hotting up in my opinion.

I have also witnessed many people moving down from Auckland to Wellington especially the Kapiti Coast with the new expressway and transmission gully it is a really nice place to live and will be an easy commute to the city or airports. With the change in digital living working from home is something that has increased over time and will continue.