The emerging wisdom of the crowd is clearly saying we are about to witness a significant correction to the housing market. (As a point of note the phrase wisdom of the crowd comes from the title of James Surowiecki’s excellent book which I coincidentally have recently read and would thoroughly recommend).
If it is any consolation – we are not alone when it comes to the property market hitting the wall in NZ. Most developed countries are to a greater or lesser extent are either about to witness this correction, or are deeply in it!. The only question is when and by how much, this useful chart from The Economist presented on Lance Wiggs blog shows the scale of some of the European property market corrections.
Whilst property is for some people a speculative investment from which to earn incremental income and establish a passive asset for retirement, the majority of home owners buy property for the pleasure of ownership and the very primal need to shelter themselves and their family.
As an option renting a property can and does meet this need. At this time there are clear arguments that renting is cheaper than buying. When you stack up mortgage repayments as well as repairs and maintenance and compare that to rental costs the incremental costs can be over $17,000 per year. However the downsides such as surety of tenure, inability to make the place your own and the thought of paying someone else’s mortgage still drive well over 60% of NZ’ers to own their own place.
Conventional wisdom always sees property purchase tied to the “nesting” mentality driving people to buy when setting up home with a partner. So with relatively low affordability the question for many is how to get on to the property ladder. Looking to trends overseas it shows that there is more people choosing for deep pragmatic reasons to buy property in partnership with friends and business partners as a means to take that first step on the ladder.
Naturally wherever there is a good idea involving the aggregation of interested parties around a shared need the web intercedes with smart functionality – this has proven to be the case with co-buying property. This concept has spawned a thriving business for a couple of UK based entrepreneurs who have taken their learning in facilitating the meeting of prospective co-buyers from their UK base to offer the service here in NZ as well as Australia and Canada. The NZ version of Co-buywithme has been operation for about a year and has over 500 members from all areas of the country and all walks of life; some looking to co-buy a first home, others looking for a shared ownership in a holiday bach; whilst others see the opportunity to explore investment property. As ever the web creates the facility for anonymous interaction – it is then up to individuals to make the buying decision, the parallels with online dating could not be more similar.
Utilising the same model of shared ownership, when people hear of fractional ownership they immediately think “time-share”. That concept may have slipped in the credibility rankings from the 1990s, but the idea of a more permanent holiday escape without the exposure to high property prices has seen this emerging segment of fractional ownership emerge over the past 5 years.
Fractional ownership is perfectly targeted to the “never-grow-old” mentality of baby boomers who fancy having a holiday home for more than a couple of weeks a year. Fractional ownership allows between 2 and 5 owner to collaborate in the purchase of a property with joint ownership rights to the title which can be sold independently and in so doing divide up the access to the property into meaningful time periods. There are a growing number of such properties being marketed in NZ’s vacation centers offering the chance for overseas buyers to grab a slice of NZ summer partnered with a kiwi family enjoying the winter activities, thereby allowing each to enjoy the benefits of a quality property for half the equity and half the mortgage and also half the appreciation in value (in time – potentially!).