Keeping up with the Joneses

The glad, mad times for property speculators are coming to an end according to Treasury, which is predicting the boom to end early next year and for a flat or declining market until 2011. And its prediction was made before the Reserve Bank's latest hike in the cash rate.

Though predictions are for a slowdown rather than a bust, it would lop off much of the value for investors, says Westpac economist Brendon O'Donovan.

Most vulnerable would be over-stretched investors who gambled on a strongly rising market to add equity against which to borrow to buy more property - a strategy of some property spruikers.

"When the market goes down," warns New Zealand Property Investors Federation president Martin Evans, "it does so suddenly because people delay buying in the expectation of buying cheaper later ... the ones who jumped on the bandwagon too late get burnt first because the properties they bought are suddenly worth less than they paid."

Evans, who believes the residential housing market is near the top of its cycle, says a downturn in immigration and the introduction of KiwiSaver may push it over the top. Fewer settlers mean a tougher rental market for landlords, while some New Zealanders may opt for KiwiSaver as an alternative to buying property.

The property boom produced an industry of advisers in how to get rich through property, and some are still extolling its fail-safe virtues through seminars.

One of the busiest property seminar and mentoring companies is Richmastery Ltd ($9 million turnover last year), headed by entrepreneur Phil Jones, who says his company's main aim is to help others fulfil lifestyle goals through real estate.

Richmastery's property products include a four-hour introduction ($39.90), three-day events (about $3500), personal mentoring (a few thousand more), a property academy and an exclusive club. An array of books and DVDs are also for sale. It charges a fee for properties it finds for its clients.

Richmastery has also run seminars on share trading, sold diet pills (Healthrich Weightmastery) and is now encouraging people to make fortunes through the multi-level marketing of a fruit juice (see sidebar).

Jones didn't comment directly on whether it is a good time to borrow extensively to invest in property but notes the end of the boom has been wrongly forecast for three years.

He still sees more positives than negatives influencing the market.

These include the effect of baby boomers approaching retirement, government programmes to help first-time buyers into property, a competitive lending environment, recent robust market figures, and the likelihood of freer government spending as the election looms.

The market is cyclical but property always rose over time. With the right strategies it is possible to make money at any stage, Jones says. Property remains a strong long-term investment and the large number of baby boomers due to retire from 2010 was an indicator it would remain so.

"It is predicted that this will leave a gap in our workforce and lead to a drive in immigration, meaning new housing stock needing to be built and an increased demand for rental properties."

Richmastery has always advocated investors hold properties long-term which would enable them to ride the cycle, Jones says.

"However, we also advise our investors to mix this with a range of other strategies, such as trading, to add cashflow to their portfolio even when the market is less favourable towards capital gain and rental properties."

Richmastery has preferred suppliers, such as brokers, but Jones says there is no compulsion to use them. "The vast majority of our associations we receive no fee for. We do have a couple who provide sponsorship of some of our events."

Another company encouraging investment in Auckland property is NZInvest. In a current advertisement, it says $3000 a month in capital value is being added to the median ($400,000) property. Marketing manager Cathy Shaw says the monthly capital growth figure came from Quotable Value's statistics for April which indicated the Auckland residential market was rising at a rate of 8.2 per cent a year.

Although impossible to predict short-term fluctuations, Shaw says a recent survey showed investor confidence remains high despite rising interest rates. As a rule of thumb, property doubled in value each decade, and NZInvest recommended property as a long-term investment.

"There's no point in setting people up to fail," she says. "We want long-term clients."

NZInvest is a one-stop property investment business which provides property managers, tax accountants, finance and insurance brokers and investment coaches, though Shaw says using them is optional. It doesn't charge clients, its revenue comes from developers whose developments NZInvest's clients invest in, brokers, accountants and managers NZInvest recommend to clients.

O'Donovan urges people to have realistic expectations. "The recent past in an investment performance doesn't mean it will continue forever but there is a tendency to extrapolate the past few years into the future.

"Long-term, housing will continue to be an excellent investment. Fifty years down the track your median house price is going to be between four and five million dollars, whereas today it's $350,000. But the time horizon is all important. Our suggestion is the market has had a phenomenal run and is more overheated than markets in either the United States, Britain or Australia, and each of those have had meaningful housing corrections within the past few years."

The market will inevitably correct and investors need to ensure their investment "can wipe its own face" and that they don't become a forced seller in a declining market.

Margaret Lomas, a best-selling Australian investment adviser, says there was considerable fallout from property seminars - bankruptcies, people committing mortgage fraud - when market conditions changed.

There was no crash in the Australian market - in fact it has many different property markets and that applies to New Zealand too, she says.

A couple of years ago when property flattened in Sydney and went soft in Melbourne, it was soaring in Perth.

Lomas says Treasury's forecasts may relate to expectations in the most populated areas but other factors may be influencing properties elsewhere.

Though she does a seminar a year in each of Australia's states (at a nominal price to cover costs, aimed at educating but also generating clients for her financial adviser business) she warns against hyped property seminars.

"More important than whether people should be listening to them at this point in time is whether they should be listening to them at all. What I have found from seminars in Australia and New Zealand is there isn't one of them that's truly designed for investor education. Every one of them is designed for the personal wealth creation of the people offering them in some way - you buying their properties, their courses, their software programmes. I haven't yet found a property seminar [about which] someone can honestly say 'I'm putting this on because I have a lot of information I want to share with people'.

"The agenda is to get people to think there is some kind of secret out there. Often they use phrases such as 'the secrets of the rich' and 'wealth creation'. Anytime those words are used is a red flag. I'm worried about people who go along and get an impression there's an easy or quick way for them to get rich. There isn't."