Last night in the NZ Herald it was reported that more overseas Chinese investment has been granted by the Chinese government. A large amount has been predicted to pour into the New Zealand property market. This could great news for some but not so great for others.
I have broken down different segments in the market and explain what this investment could mean to each of them.
With more investment into properties, will create more demand which will inevitably force prices up further. With the Auckland market already booming, Chinese investors may look elsewhere in NZ and start to head towards other major cities like Wellington, Christchurch & Hamilton. So as a home owner you will be able to rub your hands together as prices rise.
As with home owners this will be good for investors for the capital growth of their properties. But if a lot of the Chinese investors buy properties that are currently owner occupied and then put these properties up for rent there may be a glut of rental properties on the market which will in turn lower rental prices and lower the returns. So if an investor is highly geared and very reliant on the returns without a comfortable buffer for a reduced return, then they may struggle in the future.
This can be good for developers as they will initially sell property stock at a higher rate than expected if more of a boom takes place but they may then struggle against Chinese property developers if they are allowed to enter the market. With cheap money in China, a Chinese developer may not need to factor in holding costs that a local developer would do. Which could affect local developers. There may be opportunity for local developers though to partner with Chinese developers and be able to do larger developments and make higher returns. This would be good for everyone as the local developers have local knowledge and expertise while the Chinese investors can offer cheap money and more flexible lending to the developer.(This could still be subject to OIA rules and regulations).
FIRST TIME BUYERS:
First home buyers are the group which could unfortunately be hurt in this investment frenzy. If property prices go up it will just push the dream of future home ownership further out of reach for many. Economists could argue that more work will be available for more people with this investment and allow those to afford to buy a house. But for those already out there working and saving it is not going to make much difference to their earnings, to be able to afford a house any sooner.
When there is talk of interest rate drops and property booms, tenants are the long forgotten element in these equations. But this property investment and boom in property prices may just work in favour of many tenants. If there are more people investing in property, whether it be from local investors or from foreign investors it may create a large supply of rental prices. As investors look for good tenants they may have to start to reduce weekly rents to find the right people.
If you are a first home buyer then get out there now and try and take advantage of the market. Local investors may wish to start to think about selling some of their extra stock and take advantage of the higher prices. Current home owners may think about upgrading their property now, before prices start to rise too much.
Overall it is good news for most people, with the exemption of first home buyers. It will be interesting to see how the market plays out and whether the New Zealand government may need to interject if the market gets to over heated in the upcoming months.