Property guru: 'Don't expect to make money in next few years' - Stuff

A long-time property guru says it could be years before property prices really take off again.

Olly Newland, author of The Day The Bubble Bursts, which was published in 2004, and other books, says people need to remember that the property market is a long game.

“I think it will stay flat for some years. It could be three, four, five years before we see another boom. People are better not to expect to make a lot of money in the property market in the next few years. You have to have a long time horizon.”

House prices shot up about 30% in 2021 alone but are now down about 18% from their peaks.

Newland said he expected the market to flatten from here.

“I’m nervous that after the election the truth will come out about the economy. I think the powers that be are trying to keep everybody happy but the reality of the situation may bite after Christmas. I’m going to sit and wait and see.”

He said property investors had to be patient and willing to wait.

Prices had come off significantly at the top end of the market, he said. He had worked with one couple moving to New Zealand who were able to buy a house that was valued at $3.2 million for $2.2m.

“Good properties are still selling but for lower prices – and there are some bargains that make your hair stand on end.”

In his book, he outlined a number of factors that would indicate more weakness in the property market was coming, including more properties being advertised for rent. Newland said in that regard the market was still tight “but who knows where that goes”.

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Olly Newland says investing in property is a long game.

More properties being quoted with prices rather than for tender or auction would be another sign – Trade Me said there had been a significant shift in this over the past two years although that had started to change again.

Other signs of weakness to watch out for were incentives or free gifts offered when people signed up for a new house, and intensive advertising by “get rich quick” artists.

He said the price of new houses was affecting that of existing homes around them – although 15% of the sale price was GST.

But another property commentator, Kieran Trass, who published Grow Rich with the Property Cycle also in 2004, said volatility was not over yet and there would be another rise in prices next year.

“I think the most underestimated impact on the market is the power of emotion. Emotion creates motion and we are emerging from a highly emotionally charged few years, first the panic buying - some call it greed - of 2020 to 21 then the panicked pause or 'fear-driven paradigm' that stopped the market in its tracks in 2021 to 23.”

He said he expected to see panic buying return again, not driven so much by cheap interest rates but by fundamentals.

“Historically, volumes lead values, so when sales volumes rise from their current extremely low levels, as they inevitably will before long, then we can expect the herd to panic-buy for a time.”

He said the market was emerging from a crisis of confidence caused by the efforts to battle inflation, and the supply and demand equation had changed a lot in the last 18 months.

“With the sharp dropoff in new builds commenced in the last 18 months – due to higher construction costs, the credit crunch and higher interest rates – combined with the more recent tidal wave of net migrants this is placing pressure on housing supply.

“This reduction of supply combined with surge in demand is yet to be fully appreciated as many new builds are still being completed but that pipeline of supply will soon fall away delivering a vacuum of supply whilst the demand is likely to remain relatively high.

“Even if net migration doesn't continue at current levels it is still expected to be strong for some time because usually net migration trends are 'sticky'. We don't typically see the volume trend reverse suddenly, unless there is a global crisis which stifles the ability to emigrate.”

He said there were reasons why prices could be justified even if they seemed too high.

In Auckland, the Unitary Plan had pushed up the number of homes that could be constructed on sections, which altered the value of many plots.

“The large property value increase over the next five years from 2017 to 2022 was fully justified in many cases and still the price per site of land decreased which was the intention of the Unitary Plan in the first place. Confusion reigns about the true value of properties because scant regard is often given to simple facts such as this.”

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