Is Now The Right Time To Invest In Property?

Those who know me will know that I sold up my rental properties a few years ago, when it became apparent that basically the whole of NZ saw landlords as evil.

Renters were envious of landlords because they incorrectly saw them as the reason they couldn’t afford property. The media also saw them as evil and enjoyed whipping up a frenzy with renters, but more importantly the government saw them as evil and a good scapegoat for their failing policies (such as kiwibuild).

It wasn’t good business sense to be in a business that the government was trying to damage and the threat of nutty policies removing landlords basic rights made this less appealing. A history of having a couple of bad tenants also helped make my decision.

That said, being in the position I am in, with access to more property data than just about everyone in NZ, coupled with the falling property market, I find myself reconsidering whether now is the right time to buy property again.

Property doesn’t quite fit into my retirement portfolio because without considering capital gains, it has a net zero ROI after taking out amortized costs. But it could be an option as part of Plan B (if my impending company sale doesn’t happen) or post Plan A to reduce my retirement inflation risk.

Aside from the social and legal risks of owning property, I think it’s clear that a short/medium term property play could fit into my portfolio. The next question to ask is whether it’s a good time to buy property right now.

For me, I think it’s not the right time to buy property, but it could become the right time soon. The reason I say this is because my most recent analysis of current risks suggests that there’s probably more inflation to come, which means higher OCR, less affordability and therefore potentially lower property prices to come next year. There’s too much risk at the moment.

In terms of yield, rents could drop as more houses are built and immigration remains low. As houses become less affordable, more people could end up renting, but I really wouldn’t know how net demand would look when considering factors such as zero immigration, people choosing to live with family, etc. One thing that’s worth noting is that we have seen a proportional relationship between home buying and rental price, as people living in their own homes tend to reduce supply of housing due to creating fewer inhabitants per household vs. Renter households. It’s difficult to know which factors will prevail over rental prices. My gut feeling is that there will be downward pressure in rental prices over the coming year. We shall see.

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