First and foremost, don’t panic. Everything is going to be fine. The fundamental indicators of the economy have been very strong, government debt is extremely low, and like the banks of the 2008 GFC, property investors are too big to fail.
Some good stuff to consider
- The main centres will not see a downturn in property values.
- City populations (demand) will continue to grow.
- New development (supply) will slow.
- Mortgage holidays are there if you need them (although avoid if you can).
- The government has a huge borrowing capacity which they will continue to use to carry us through.
- Interest rates are at rock bottom.
- Investment from other categories are suffering. Property is very attractive as a result.
- Beneficiaries incomes have increased and living expenses have fallen.
- A relief package for tenants who can’t pay rent will surely come.
- Most recessions are followed by a property boom.
This is more shocking than it is devastating. It’s all happened so quickly, but as fast as it began, things will return to normal. If you have been following our investment strategy (Perhaps you read our Property 101 book or came to our seminars), you will have a rental property in a major centre, with long term tenants and a sensible mortgage structure.
Not so good stuff
People will lose their jobs. Your tenants are not immune to this. We do expect government bail outs to combat this to some degree.
We will see a flood of short term accommodation moving into the long term market, which will take it’s toll on rent levels in the immediate future, but as the domestic tourism market makes it’s resurgence, the effects of this will be mitigated.
It’s a terrible time to find a tenant, but expect a surge of enquiry for nice homes when the quarantine is over. Anyone stuck in an old damp house right now is wishing they had a better one.
We are witnessing a surge of stranded tourists and essential service workers seeking urgent short term accommodation, but expect this to end by Saturday.
You’ve likely seen in the news yesterday that some major banks have indicated ‘Mortgage Holidays’ will be made available, meaning a holiday from paying your interest and principle.
‘Mortgage Holiday’ is a deceptive title. A common misconception is that while you are not made to pay the interest, it isn’t being charged to you. This is not the case.
If you take one of these holidays, it is very helpful to reduce your outgoing cash flow, and some mortgage holders will most certainly want to take advantage of that opportunity if their normal income has been negatively affected by the current economic climate, however it does come at a cost, so avoid it if you can.
If you do take a mortgage holiday, your loan will continue to accrue interest over time. Put more simply, while you don’t pay your interest, your loan amount grows.
For those who have been following our advice for some time, or working with one of our mortgage advisers, you will probably have a revolving credit or offset facility in place. Our advice to you is to take advantage of the mortgage holiday on offer, but continue to pay your regular loan payments into that facility while you can. This will give you the ability to reserve your cash for a rainy day, but not pay additional interest while the sun is still out.
We recommend NZHL for the best mortgage structure advice. If you are still employed currently, this may be the best time to contact them about your own mortgage requirements.
Construction has halted, processing time has slowed, supply lines are depleted, and money is harder to come by. Expect the shortage of new investment properties to become apparent soon. If you were considering purchasing a brand new investment property before, this could be your last chance in 2020 to find a good one.
We deal predominantly with Christchurch developers and will be monitoring their movements as the situation develops, as well as keeping our eyes open to opportunities. The current sentiment is that we will not witness any discounting on new property, nor many new developments being released in the coming months.
For our clients which have purchased property off-plan, currently awaiting completion/settlement, expect significant delays while we wait for hammers to start swinging again.
Property Investors Club
We will continue to provide our services in an altered or limited capacity, while our staff are in quarantine.
Our scheduled Property Investment Talks at CAPA and Dux Central will be canceled until further notice. In lieu of these events, we will be accepted one-on-one phone appointments with our advisers.
For our existing clients who have questions or concerns, please don’t hesitate to call your preferred adviser at Property Club (though be aware you might hear noisy kids in the background these days!).