Silver linings to be found in economic clouds

Earthquakes, low building consent figures and leaky homes make grim reading for property investors, but author and property investor Olly Newland says it is not all bad news.

Newland was the guest speaker at the March meeting of the Rotorua Property Investors' Association at the Novotel this week, outlining ten positive outcomes for the investment market.

1. The Christchurch earthquakes

The loss of thousands of homes in a short period in the Canterbury region is destruction on a scale Newland said had not been seen in New Zealand before. It will take some time for that volume of houses to be rebuilt, but the millions of dollars in insurance money that would, eventually, pour into the economy would have a positive effect.

2. Low construction activity

A slow-down in building consents has been tough for the building industry, but Newland said it was creating a shortage of affordable properties, putting property owners in a stronger position to demand higher rents or higher sale prices.

3. Tax

Newland said he did not think talk of a capital gains tax would put investors off property, but it was causing people to hold onto purchases a bit longer, which was positive for the wider market.

4. Depreciation

Owners of commercial buildings and rental houses can no longer claim depreciation on investments - a change Newland said could push rents up so investors can regain their losses. But, on the positive side, people were now looking more carefully at their chattels.

5. Leaky homes

Newland described the leaky homes saga as "a tragedy" for many people left with homes they could not sell. Even when recladding work had been done, buyers were very wary.

But he said this was creating a shortage, which was positive for unaffected investors.

6. Low interest rates

These are not good for depositors, but Newland said he had not seen rates this low throughout his career.

"This is very positive for the market. You can get a mortgage for 5-5.5 per cent and rates are likely to stay around that for a while. People are working out they can borrow twice as much for the same cost."

He said there were no guarantees this would last and borrowers needed to be sure they could afford any future interest rate rises.

7. The global financial crisis

"People are gravitating towards assets that do not disappear. They want something that will be there tomorrow."

Newland said this included artworks and antiques, commodities such as gold and, of course, property and the demand that created was positive for the market.

8. Emigration and immigration

Although record numbers of people are leaving New Zealand, Newland said the country was also seeing record immigration and, overall, the population increased by 1 per cent in the past year.

"That's 40,000 people a year who need about 20,000 houses."

9. Mortgage applications

These are at their highest level in seven years and Newland said this would filter through into the property market in due course.

"It's all good for the market."

10. Business loan security

Tougher credit conditions in the wake of the global financial crisis is also having a positive effect on the property investment market as businesses buy real estate to act as security for loans.