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YOUR MONEY: Bay investors seek safer odds

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  • YOUR MONEY: Bay investors seek safer odds

    YOUR MONEY: Bay investors seek safer odds

    By Graham Skellern
    Rising house prices that show little sign of easing off have taken the sting out of the property investment market in Tauranga.

    More investors in the Bay are turning to the safer haven of fixed interest as they ponder the fate of their favourite investment pastime - making money out of residential property.

    Will the market crash or will prices simply level out? Will rents increase and when will house prices take off again? Whatever the case, it's a time to be sitting and watching from the property sideline.

    Even Dan Keller, president of Tauranga Property Investors Association, admits that at present it's better to have money sitting in a bank term deposit at 7-7.5 per cent than investing in rental property.
    "If you can get a return of something over 5 per cent then you are doing well out of your rental, but yields have definitely gone down because of the increase in sale prices," Mr Keller said.

    In a booming property market over the past three years, house prices have risen as much as 50 per cent but weekly rentals have increased only 10-15 per cent.

    To make a property work properly nowadays, an investor needs to put down a bigger deposit - even half of the purchase price.

    A three bedroom house in The Avenues, central Tauranga - a good renter - cost $300,000 three years ago and attracted a weekly rent of $320. It required a deposit of $100,000 to produce a gross return of 5.55 per cent based on the 25-year mortgage commitment.

    Today that same house would be worth $400,000 and the rent might have edged up to $350 a week, requiring a $200,000 deposit to produce a gross return of 4.55 per cent. Mr Keller said the last three of four years had pulled a lot of new investors in to the market and now there's more competition.

    "There are houses out there but the vendors have high (price) expectations - until that changes investors have to do their homework, look long and hard and be patient. The market has to balance out at some stage."

    He believes at worst property prices will level out - with its population growth, Tauranga is such a great market but it may take up to five years before prices start leaping ahead again.

    John O'Donnell said no-one was running seminars or pushing property books - that's a sure sign that property investment has slowed down.

    "There has to be some negatively geared properties around Tauranga and these owners have to rely on other income to support their rental investment. Investors now have to look at capital gain rather than rental return," he said.

    Like property, the New Zealand sharemarket has had a stellar run, producing an average return of 25 per cent over the past year. Market analysts don't expect that to be repeated in the next 12 months, though well managed, quality companies operating core services will still produce a tidy return, either in dividend income or profit and share price growth.

    While the clouds darken over property and shares, investors are turning to fixed interest, whether it's term deposits, debentures, mortgage trusts or capital-protected managed funds. The Tauranga office of Dorchester Finance has experienced 26 per cent growth in dollars invested for the 12 months ending September 30. Western Bay of Plenty Finance has taken $5 million of new investments in the past five months.

    News source
    Last edited by muppet; 27-10-2005, 04:32 PM.
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx