Are we on the verge of a fantastic year for property investors?
The housing market in Auckland has been flat since mid-2016 but there are signs it may be turning a corner. This is why we think 2020 is going to be a good year for Auckland investors:
- It’s extremely difficult to find good returns for your money. Business confidence is low; returns on term deposits and bonds are low; investors are nervous about the global economy. Where do you put your money? What do you trust? Property investment returns are lower than they have been in the past, but they still compare favourably to many other asset classes. A 5% return was once derisible – now it’s pretty attractive.
- The spring bounce suggests Auckland housing values have turned the corner, with a small across-the-board price rise in all districts. That is a positive sign, although values are still below where they were earlier in the year. We’re hoping see prices rebound to their former heights next year, or even a little higher.
- Interest rates are incredibly low. Astonishingly low. You can get fabulous deals, like a sub-3.5% interest rate with cash back – this is brilliant for borrowers.
- Banks have eased up on their servicing requirements. Until recently banks were still calculating a borrower’s servicing ability based on high interest rates. Now, that servicing test rate has dropped by between 50 and 80 basis points, which means you will be able to borrow more than before. This should help first home buyers and investors.
- The Reserve Bank has already eased its loan-to-value ratio restrictions and they will probably be loosened even further in November. This could boost the housing market further – you can read an analysis here.
- Rents are likely to rise as a result of increasing costs for property investors (see more below). That will boost yields, which will make investment property look more appealing once again.
- With consistently strong immigration and a continued housing crisis, the demand for rental properties is rising. Supply and demand means this will push up rents.
There are so many factors at play which would all seem to be positive influencers for property investors. If people respond rationally to these market drivers, we should see a significant market boost in 2020 – but people aren’t always rational. We’ll be watching with interest and keeping you updated!