Source: NZ Herald

Sunday July 08, 2007

Auckland property investor Sean Wood predicts the city’s next property boom will be New Zealand’s biggest - and it will benefit the whole country.

Like other investors, he says several factors will cause the boom, from 2010 to 2015, with increases in some areas of up to 40 per cent in 12 months.

The retirement of the first wave of baby boomers will be a big factor, he says. Between 2010 and 2015, 125,000 people a year will retire. To replace them in the workforce, New Zealand will need net migration of about 200,000 a year and they will need somewhere to live.

Wood, who owns more than 35 properties in Auckland worth $14 million, says most immigrants will come from Asia and India. Used to living in high-rise apartments, they will favour similar accommodation in inner-city Auckland, at least until they get to know the city and its suburbs.

During those boom years, good apartments will be in short supply, forcing prices up.

Increases in Auckland City Council reserve contribution fees and increased construction costs mean many developers have shied away from new projects. As a result, resource consents for new developments have almost dried up this year.

To meet the demand, consents will need to be issued this year to allow for construction time of between 2 1/2 and 4 1/2 years, he says. The lack of new developments will mean a shortage of stock by 2010, putting pressure on existing apartments. “That will cause a major increase in the price of apartments because there simply won’t be enough to go around.”

President of the Real Estate Institute, Murray Cleland, predicts the retiring baby boomers will want to downsize from their large family homes, also increasing demand for townhouses and apartments.

And fellow Auckland property investor Andrew King believes KiwiSaver will have an impact. He says the first-home grants from the Government - giving couples up to $10,000 - could add to the boom, with a rash of first-home buyers coming on to the market in 2012.

The biggest gains in property values will be made at the beginning of the boom, in the first six to 12 months, Wood says. As people start reading about it and talking to other people about it, they become excited and want to “climb in”, causing property prices to rise.

Grant Hoey, a property investor specialising in inner-city apartments, agrees with Wood. And they also think international events such as the Rugby World Cup and the World Rowing Championships will also boost the Auckland apartment market.

That boom will ripple out as existing tenants or owners move out and into the suburbs, Hoey says.

Good apartments have natural light, are in a good location and are bigger than 45sq m, he says. Services such as swimming pools and gymnasiums are not important. “They just mean a large amount of money to upkeep for everybody.”

Carparks will be a problem but Hoey hopes Auckland’s public transport will be in better shape.

Cleland thinks if the Britain’s terrorist threat worsens it could encourage well-funded expats to return to New Zealand, such as occurred after 9/11 in 2001. “We seem to be right down the bottom of the world where people don’t seem to worry about us,” he says. “We are seen as a safe haven. That will be a plus for New Zealand.”

And the failure of finance company Bridgecorp will make people think twice about where to put their investments. “They would have been a lot safer putting it into property.”

While the boom is expected to explode in Auckland, the rest of the country won’t miss out. However, the regions will have to wait until it works its way through major centres such as Wellington and Christchurch first.

Wood says first-home buyers will not be able to buy in the main centres and will look to the provinces. With a tight workforce, existing home owners wanting lifestyle and some spare cash will take advantage of a buoyant market, sell in Auckland and buy somewhere cheaper.

Investors, too, will look to the provinces for cheaper properties that give a higher yield. Yields in Auckland could drop to around 5 per cent, Wood says.

Some property investors will use the higher yields of their provincial properties to subsidise their Auckland property portfolio.

Wood predicts that many retiring baby boomers will let their larger homes and rent something smaller, or borrow against the property to either fund a retirement lifestyle or buy another rental property.

He thinks it will be better for them to hang on to their homes and benefit from the capital growth.

“You would be much better off to retain your home and use the reverse annuity against the property rather than selling it,” he says. “You are getting free cash flow and you still get the capital growth.”

At a glance

* Property investors predict a big property boom between 2010 and 2015 because:

* There will be an immigration wave to fill the gap in the workforce left by retiring baby boomers.

* Many will be people used to living in apartments, creating more demand.

* Rising council costs have meant fewer developments, leading to an apartment shortfall.

* Baby boomers downsizing to townhouse living and KiwiSaver first home grants will also increase demand.

* There will be a flow-on effect to the suburbs and other centres.