Is Now The Worst Time To Buy Real Estate in NZ?
Property prices, inflation, credit crunches, global tensions and high interest rates signal many property investors bowing out and determining that today’s market is the worst time to buy real estate in NZ.
In fact, you just have to do a quick google search to get a queue of results which back up the notion that 2023 could just well be the worst time to buy real estate due to so many factors that are completely out of your hot little hands.
However, what if the scaremongering headlines simply aren’t true? Afterall, media companies are not property investing experts. And explaining how the property market, and its cycles work, would be too boring and long to fit into a news segment every night.
But, in order to correctly read between the lines of all the scary reports, you need to have context. Especially if you are a property investor or one day would like to become one. Because this key education is what separates the people who are able to successfully create wealth from real estate, from those who are too scared to tip their toes in the water.
Knowledge is also what helps us to determine if the circumstances mentioned above truly do indicate that now is the worst time to buy real estate, or if that’s simply not the case at all.
HOW TO APPROACH BUYING REAL ESTATE IN ANY GIVEN MARKET
There’s a very clever saying by American business heavyweight Warren Buffet which says, ‘Be fearful of when others are greedy, and greedy when others are fearful’.
To fully grasp Buffet’s genius around this idea, you need to understand how the real estate market works.
From the outlook, real estate can feel like a complex beast. There are both micro and macro factors to consider which relate to almost all aspects of human life – which makes sense when you contemplate that your property is where someone else calls home.
So, yeah it’s more complicated than just tossing around terms such as ‘good market’ or ‘bad market’.
It’s like anything. Performing brain surgery sounds scary if you don’t know what you’re doing right? But with years of education and experience, you want your brain surgeon to feel like a pro when he or she walks into the operating room.
Buying real estate is exactly the same. When you know what you’re doing, it’s quite possible that there’s actually no best or worst time to buy real estate. But there are key rules to follow, to ensure you buy well in any given market.
TODAY’S PROPERTY MARKET IS SEEMINGLY THE WORST TIME TO BUY REAL ESTATE
There are very good reasons why many would consider today the worst time to buy real estate.
This starts by understanding that there is no one property market, instead various cycles in which real estate will travel through across the lifespan of your portfolio. These cycles are out of your control and will always follow a rough pattern based on historical data. To put it simply, the property market will go up and it will go down. The market is rife for opportunity in both the up and down markets, as long as you have the right road map to take advantage of the unique options that each present.
With that being said, it’s easy to see why this particular market cycle could be perceived as the worst time to buy real estate.
Over the last couple of years New Zealand (and much of the world) has been in a boom market (up). Property values rose at exponential levels due to a combination of historically low interest rates, COVID demand, housing shortages and fear of missing out.
I’ve spoken before about how the growth of these property values would not be sustained over the long term and that an adjustment would be imminent, which brings us to today, where the market is now correcting itself.
For this particular market shift, the corrections are coming in the form of rising interest rates to curb inflation and to help bring the economy back under control. There is no denying that this may cause short-term financial pressure for some households. Or for investors who purchased property at the height of the market peak, and are now staring down the barrel of much higher mortgage repayments. This prospect could especially be stressful if safety buffers or back up funds were not established at the time of purchase.
Added to this, even if you are able to sail through this high interest rate environment, banks have tightened their belts when it comes to accepting new loan applications. Obtaining finance is oxygen when it comes to an investors’ ability to purchase property. For many, the credit squeeze has stopped investors in their tracks when it comes to taking the next steps to grow their portfolio.
On top of these strained conditions, there’s also the blaring sensationalised media headlines beating the drum of an impending market collapse any day now.
It sounds grim right? And it certainly makes you wonder if now really is the worst time to buy real estate?
BE FEARFUL WHEN OTHERS ARE GREEDY, AND GREEDY WHEN OTHERS ARE FEARFUL
Let’s go back to Warren Buffet’s quote for a minute.
In the context of real estate, this means that there are incredible opportunities for the right investors who are willing to see past the doom and gloom headlines, get educated and take a long-term outlook when it comes to investing in property.
There will be deals to be made. There will be finance packages to negotiate. There will be opportunities to leverage your position and situation. There will be incentives and cash back grabs. There will be prime real estate to pounce on.
Because when the flurry of high demand starts to leave the market due to fear and an inability to move forward, this is when the real investors come out to play.
The late Dr Wayne Dyer has a brilliant quote which says, ‘When you change the way you look at things, the things you look at change’. This could not be more fitting for an investor. The opportunity to make extreme wealth during times of upheaval is well documented and is available to anyone with the right mindset.
TIME VERSUS MARKET CYCLES TO DETERMINE BEST OR WORST TIME TO BUY REAL ESTATE
So, when it comes to deciding if now is the best or the worst time to buy real estate, you must adopt a unique mindset. One of opportunity. But also, one that approaches the factor of time differently, which is irrespective of changing market cycles.
That’s because you simply cannot create more time. And, if the success of real estate is based on time in the market, then the timing of ‘now’ is a really attractive value proposition.
So, the way you view time is crucial to the physical outcomes that you’ll be able to go on to manifest if you choose to respect it.
Creating long lasting wealth requires dedication, strategy and like I’ve said, time. So, you have to start making time work for you and not against you.
This is essentially putting your money to work out in the marketplace through an investment vehicle – my favourite being real estate.
The best time to invest was always yesterday. The next best time is always now. It’s not going to get cheaper to buy property and none of us will live forever. We will all hit the end at some point. Time is the strongest ingredient to make the biggest impact on your portfolio and therefore your ability to create wealth earlier on so you can enjoy it for longer. Every day that you’re not investing is a day that you’re not getting at the end.
Long term, today’s market conditions will not matter. The only thing that will matter is if you’ve invested today.
For instance, wide-spread talk about a market crash may make some investors overly cautious about dipping their toes in today. Surely if they wait, they’ll get a better deal?
The problem with this is, while you’re sitting there hoping for a halt in property prices – the exact opposite is happening. Long term, property increases in value.
So by waiting, not only are you losing potential capital growth, you’ll also likely pay a higher cost to enter into the market.
Take this for example. Over the last 12 months we’ve seen around 20 per cent growth (some areas more than others). So even if going forward the market grew at a slightly slower rate of 15, 12 or even seven per cent – growth is still growth and the price of real estate will continue to be more in the future than it is today!
Interest rates will go up and down. There are strategies you can use to manage this, but choosing not to buy because of them will also see you on the back foot.
Not acting in the hopes that the market will go backwards is wishful thinking that will cause you to lose out on huge gains. The best time to buy (with the right investment strategy) is today.
EXCEPTIONS TO THE RULE
There are however exceptions to the rule. The reason for this is that not all real estate is winning real estate. The boom market cycle saw every man and his dog enjoy reasonable capital growth, regardless of if the property was a dud.
As the market corrects itself, not all property will excel as we’ve seen it perform in the last market cycle. Quality property will trump and that’s what investors need to focus on as they continue to build their property portfolios over the next few years.
Buying a dud in this emerging market, will absolutely make now the worst time to buy real estate – but that’s not exclusive to today’s market. There is a lot of poor quality, dysfunctional stock in New Zealand that will not be suitable to last the distance and perform over the long term.
This is because a key ingredient of becoming a successful property investor means being able to sustain good rental yields that are supported by top tenants. Renters will simply not put up with dwellings that are not to standard or positioned in liveable areas.
HOW TO BUY THE RIGHT TYPES OF PROPERTY
There are six common market drivers that help push up values:
- Population growth
- Infrastructure growth
- Supply vs demand
Each of these will influence property growth. For example, if you can find population growth in an area where infrastructure is improving and expanding, where you know that people are going to want to live, then that’s a good place to invest.
Then there’s the significance of location which is simple – you can do what you want with your real estate, but you can never change the area it’s in.
Knowing what drives growth in property investment (like the factors mentioned above), and what will therefore influence your wealth, must be taken into account when defining your strategy.
A lot of quality real estate gets overlooked because investors have preconceived ideas about certain locations, but remember it’s not about buying property for yourself to live in, rather property that’s going to attract the right tenants.
THERE IS NO BEST OR WORST TIME TO BUY REAL ESTATE
In summary, there really is no best or worst time to buy real estate. On the other hand, you should look at your ability to create wealth from property investing as a holistic, strategic and long term venture.
As long as you are aware of all strategies, and you work with a team of experts to determine which is the best fit for you and your long-term goals then you’ll be on your way to creating generational wealth through property investment.
Knowledge is the most important piece to this puzzle!
The best thing you can do is get support, so come along to one of our FREE property investing masterclasses. Our coaches and mentors have real life experience as investors and can give you the tools, resources and knowledge to help you build your property portfolio.
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