Private property issue #1 - house prices are dropping

Private Property – our weekly newsletter that gives you insights into what's happening in the NZ property market. Written by managing director Andrew Nicol. Sign up to receive this in your inbox every Thursday.

Property prices are falling. Mid-last month, REINZ released new data that showed NZ house prices had dropped 2.6% since November.

Not a lot. But then, the Reserve Bank held a press conference last week showing their projections – an 8-and-a-bit percent decrease before prices start rising again.

Before you get out your stopwatches and start trying to time the market, you need to know what their Chief Economist, Yuong Ha, said at the press conference –

“House prices [and] asset prices are notoriously hard to forecast. We have a working assumption or technical projection … that they fall by about 9% over the next 2-3 years. But, you know, time will tell whether that comes to pass.”

The Reserve Bank Governor – Adrian Orr – then chipped in with, “we’re more confident in the direction, rather than the magnitude.”

In other words, they think house prices will drop. But they can’t tell you how much they’ll fall or when the market will bottom out. It’s a technical projection rather than a model you base your property investment decisions on.

So, you can’t just wait for 6.73 months until the “bottom of the market,” just because “that’s what the Reserve Bank’s graph shows”.

But while you can’t time the market, you can take advantage of it. And the market has already turned.

This means it's no longer a sellers’ market. Buyers now have the upper hand. That creates room for property prices to soften and investors to snag a deal.

And the best time to negotiate is in this current period where prices are falling and before property prices start to recover.

Already, developers are coming to the table willing to negotiate. This was unheard of just four months ago. Today, they are already reducing their prices, offering incentives, and saying ‘yes’ to better contractual terms … the sunset clauses are going.

Here are some of the practical things I've negotiated this week:

• One developer reduced their price by $87,300 after letting him in on a few home truths about the current market.
• Another has agreed to pay for the investors' legal fees.
• And one developer from Wellington is now planning to include bits and pieces they usually wouldn’t like curtains and blinds.

Ultimately, this is better for investors and first home buyers. You’re a buyer in a buyers’ market. Get ready. The opportunities are here. And more are on their way.

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