Property Investment
3 min read
Author: Andrew Nicol
Founder, 20+ Years' Experience Investing In Property, Author & Host
The New Zealand property market has been soft for the last few years.
Some investors are paying to hold on to properties that are now worth less than they paid.
One investor wrestling with this dilemma, Cliff, called up our economist on Newstalk ZB last Saturday to ask: âShould we stick with it or sell up?â
Letâs look at the numbers.
Back in 2021, Cliff and his wife bought a $1.07 million investment property in WhangÄrei.
The plan was to hold it until retirement, around age 65.
They'd done their homework and expected the rent to cover most of the costs.
But 5 years later, the property has dropped in value, and the rent isnât covering all the costs.Â
| The numbers | Cliff's property |
| Purchase price (2021) | $1,070,000 |
| Estimated value today | $920,000 - $950,000 |
| Fall in value | $120,000 - $150,000 |
| Mortgage | Around $900,000 |
| Weekly top-up | $288 |
To be clear, Cliff isnât an Opes client. Heâs a Newstalk ZB listener who happened to call in.
The couple are topping up the property by about $15,000 a year to cover all the costs.Â
And he's worried that if the interest deductibility rules change after the election, he could be topping up the property by even more.
You'd think he'd be itching to sell. But he doesn't want to.
âWe donât want to sell. My greatest joy, personally, in the past 5 years, is providing people with a home.â
But on the other hand, âMy wife says weâre up to the gunwales. Weâre riding the line, and itâs not easy.â
Hereâs what we said on the radio. Keeping in mind that we donât know everything about Cliffâs situation. So these are some general thoughts âÂ
Cliffâs main concern was about interest deductibility. But generally, investors shouldnât rush to sell today.Â
Because the election 3 weeks away. Even if he put up a for-sale sign today, you canât sell before the election.Â
Property prices tend to pick up in February compared to December and January. So even if you were to sell, you might decide itâs better to sell in late Summer rather than heading towards Christmas.Â
Cliff and his wife didn't buy the property to make money in 5 years. They bought it for their retirement.
They're 54 and 56 today. So theyâve about 10 years before they plan to sell. And property prices could go up over that time.
The Northland property market is still 15.7% below the peak of the market. But there are parts of the country where house prices have already fully recovered.Â
House prices in Southland, Otago and Canterbury are already higher than they were at the peak of the market in 2021.
Our modelling at Opes Partners suggests that the Northland property market has a 50/50 chance of recovering within 3 years. And a 75% chance of recovering within 6 years.
In case youâre not in Northland, use this map to see how your region might recover:
Of course, there's no guarantee that will happen.
But the question isn't whether the last 5 years have been disappointing.
It's whether the property still fits their goals for the next 10. The answer could be ânoâ. It could also be âyesâ.
Cliff's paying around $288 a week towards the property.
But some of that repayment is going towards paying off debt.
This doesn't make the top-up painless. Itâs hard to find $15,000 a year to put towards your property.
But it's worth separating the money thatâs topping up the mortgage vs growing your wealth (by paying off debt).
Ultimately, you canât say whether Cliff should stick-with-it or sell-up after just a quick chat on the radio.
To get financial advice, youâve got to talk to a financial adviser.Â
But I often meet investors in similar positions. And I find myself reminding them that if they have 10+ years until retirement ⌠that's still a decent amount of time.
Many investors want to buy low and sell high.Â
But if you bought at the peak and sell in the trough, you could be doing the opposite. Buying high. Selling low.
Founder, 20+ Years' Experience Investing In Property, Author & Host
Andrew Nicol, Managing Director at Opes Partners, is a seasoned financial adviser and property investment expert with 20+ years of experience. With 40 investment properties, he hosts the Property Academy Podcast, co-authored 'Wealth Plan' with Ed Mcknight, and has helped 1,894 Kiwis achieve financial security through property investment.
This article is for your general information. Itâs not financial advice. See here for details about our Financial Advice Provider Disclosure. So Opes isnât telling you what to do with your own money.Â
Weâve made every effort to make sure the information is accurate. But we occasionally get the odd fact wrong. Make sure you do your own research or talk to a financial adviser before making any investment decisions.
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