Article: Law & Finance
Property Investment After The Global Financial Crisis
In times like these, the media is full of opinion for and against property as an investment. With a buyers’ market and low interest rates, is this the time to jump in and buy? Or are we at the beginning of a long downwards correction in property values? It’s easy to find experts who will give opposite views of the prospects for property.
So what do you do? Here are some of the pros and cons for investing in property after the global financial crisis:
Pros
• With countries like the USA printing money in an effort to fix their own problems, there is a real risk of global inflation over the medium term. In times of inflation, property tends to be a winner;
• Immigration is a strong driver of property values, and the net inflow of migrants is forecast to continue;
• Job security and business confidence impact on property markets. A recent nationwide survey tells us one in four businesses (including Elevate CA) intend to increase staff in the next quarter;
• We are seeing below average building consent approvals, the construction industry is still in recession - and property developers are struggling to get funding. This means construction is likely to be less than needed to keep pace with population growth;
• Even after last year’s budget, the tax system still incentivises property investment;
• Kiwis have good reason to be wary of entrusting our savings to someone else’s management. As a do it yourself investment option, property looks good.
And On The Minus Side
• The government has made clear their intention to change Kiwi’s investing preferences away from property. If the 2010 budget changes don’t do the trick, who knows what might come next?
• The global financial crisis has prompted an aversion to debt. Is this the new normal, or will it pass once people start to feel more secure?
• Essentials like food, fuel and healthcare are rising in price leaving less in the collective household budgets for housing;
• There is a view that rental and lease returns and property affordability must return to long term average levels, which would suggest a time of little or no growth in values.
So What?
Without a crystal ball, we can’t say for sure how the future will pan out. But in my view residential, commercial or industrial property still has a rightful place as part of a balanced investment strategy. If you can tick these boxes, now might be a great time to start investigating the possibilities:
• If you have a long term view – say ten years or more;
• If you’re not counting on tax benefits to make an investment stack up;
• If you’re not already overly exposed to property as an investment;
• If an investment won’t leave you with an excessive level of debt relative to your circumstances;
• If you’re not counting on ambitious capital gains to make an investment work;
• If you can live with the possibility that there may still be a rocky ride for property for a while yet.
Of course there are many more factors that must be considered – and each property and each set of circumstances is different. So if you’re considering property as an investment, we strongly suggest you involve your professional advisors every step of the way.
Fraser Hurrell is a director of Elevate CA. He has a particular interest in property investment matters, structuring and financing options for business – and managing due diligence and the business sale and purchase process. Fraser is also the Elevate CA business valuation specialist. He regularly presents at business seminars.
