With many forecasters anticipating a potential drop of interest rates in 2024 and promises of the government bringing the bright-line test back to 2-years, property investing may become that bit more palatable for many. With increased optimism in the headlines about the property market’s future, this begs the question: Is it better to wait for improved conditions before entering the market?
While the market consensus leans towards potential rate cuts sooner due to NZ's slowing economy and low retail sales, the reserve banks most recent announcement indicates the OCR will remain with little indication as to when they’re likely to drop.
However, with that said, leading mortgage advisory firm, Squirrel Mortgages, observes an increase in activity for both buyers and sellers in the housing market with both groups gaining confidence due to stabilising interest rates and improved market conditions. Whether it’s better to buy now or wait to buy is beside the point. A number of factors come into play for success in property investing, and we believe timing the market is not one of them.
While it’s important to remain up to date on the current economic environment and understand the conditions you’re working within, it’s not the be all and end all to the success of growing wealth through property. As always, time in the market is better than timing the market, so if you’re ready to execute your plan now, then why wait?
Below are some of what we believe to be the most important considerations when investing in property:
With any form of investing, there are risks involved. So, ensure you have factored these risks into your plan and have formulated a de-risking strategy. Some potential risks at play when it comes to property investing:
Purchasing the wrong property with the wrong capital growth rate or yield (in other words, a lemon). To mitigate this, it pays to do your research and ensure you’ve chosen a property that is going to help you achieve your goals. Understand which regions are primed for growth, and minimise your exposure to maintenance costs as those will eat into your overall returns (new builds come with a 10-year guarantee to help mitigate those maintenance costs).
Committing to a weekly top up that is too high to maintain.
Working with the wrong builder. At Momentum Realty, we have a strict set of criteria a vendor must meet before we work with them.
Not building in cash-flow contingencies.
Not all properties are created equal. In fact, almost 90% of the properties on the market today are likely lemons. Some key things you want to look out for when identifying the right property are:
Buying new. New builds can offer better growth and rental yields over time. Most come with a 10-year builder guarantee and can attract better tenants. They require less maintenance, meaning fewer expenses eating into your bottom line.
It’s built in a region primed for growth. Some regions we’ve identified to have greater potential for growth are Auckland, Waikato, Canterbury, Otago, and Invercargill.
Whether you’re buying at the peak of the economic cycle or at the trough, it’s essential to have a plan in place so that you’re able to hold your property no matter the market conditions. You want to position yourself to be able to benefit from market recoveries and capital growth, but none of this will matter if you’re forced to sell prematurely.
Typically, when interest rates are at their lowest, house prices are at their highest. But on the reverse, when rates are at their peak, house prices are at their cheapest. Waiting until rates come down means you risk entering the market when more investors have the ability to compete (in turn, driving prices up), you’re left with the potential for needing a bigger deposit and lower short-term yields, as rents have not kept pace with prices.
While forecasters hint at potential interest rate drops and government promises of the brightline test to reduce in 2024, the decision to enter the property market shouldn't hinge solely on timing. Success in property investment lies in minimising risks, ensure you’re identifying the right properties to solve your cash flow problem, and having a well thought out strategy to hold your property no matter the economic conditions.
But if you’re still wondering whether the time is right, we will leave you with this proverb to ponder:
"The best time to plant a tree was 20 years ago. The second best time is today."
While property investment may seem simple from the outside, there’s a lot that goes into buying the right property and making sure you can hold it through the fluctuations of a property cycle. In this guide, you’ll find everything that you need to know about what makes property such a powerful investment option, and how to make sure you buy the right investment property to meet your financial goals.
Click here to download the New Zealand Property Investor Handbook by Momentum Realty.