Pain before gain

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The Martin Hawes property forecast – light at end of very long tunnel.

So what’s the property outlook for 2009? Many so-called experts have vested interests but an exception is Queenstown money guru Martin Hawes.

Since the mid-1990s, when Hawes wrote a bestseller on family trusts, he’s been New Zealand’s most successful financial author. He also delivers seminars, writes newspaper columns, dispenses advice on TV and conducts clinics on wealth creation.

This week Hawes answered questions on property.

Mountain Scene: How has property stacked up for wealth creation compared with other investments?

Martin Hawes: In the last decade, property has been the best wealth-creating asset, especially in places like Queenstown. The excellent returns property has enjoyed have been improved for most people because they borrow to buy property. However, borrowing to buy investments is a double-edged sword – it does magnify the losses as well as the gains.

MS: Have you invested a lot in property yourself?

MH: I regard property investment as a business and with my writing, speaking and advising, I am busy enough. I get my own exposure to investment property by buying listed commercial property trusts – the yields are very good and the returns have been excellent.

MS: What about property development?

MH: I would never develop property – only a few developers make money throughout the economic cycle, in good times and in bad. On the whole, people should steer clear of development and simply buy good-quality, income-earning property and hold it for years or decades.

MS: Will property prices, eg residential homes, fall even more this year?

MH: I think property prices will go lower in 2009. Yields are still very low and there will be many redundancies in 2009. Immigration will be low and we will lose a great number of people to Australia and beyond. There are now a great number of “accidental landlords” – people who have not been able to sell their houses and so rent them – and these people will still want to sell their houses when they can. This will overhang the property markets – I am fairly gloomy on the prospects for NZ property in 2009 and beyond.

MS: What about Queenstown specifically?

MH: Queenstown may do better than the rest of NZ. We have some specific drivers here, especially overseas people. The fall in the NZ dollar will certainly help. In the long term, 10 years and over, Queenstown will be the best place in NZ to invest – provided international tourism remains strong. Some markets in the Wakatipu could also surprise on the upside in the short term – two to three years.

MS: What about the apartment market?

MH: People should not buy apartments. The last two booms we’ve had – 1990s and 2000s – show very clearly it is land that goes up in value, and with apartments you own only a very small amount of land. Apartments may be cheaper than houses but in the short term they will probably fall further in value, and in the long term will not show much growth. As well as this, you have all the body-corporate issues and the design/construction quality is often very poor.

MS: What’s your advice to would-be property buyers?

MH: Property buyers should buy properties that have as much land as possible – if inflation remains low, it is mostly the land that rises strongly, the bricks and mortar will be relatively flat.