Economic Quagmire Improving? Shhh... Don't Tell Anyone!
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Articles by Matthew Gilligan
As I have said on several occasions, property and stock markets react much faster than local businesses to bad news.
The property sector and stock market wear the downside of recession very quickly, as does the entire supply chain underneath these sectors of the economy.
But right behind them is the rest of the economy, tightening the belt off tight credit and fear driving reduced consumption.
The whole of 2008 and the first quarter of 2009 has been about falling/bear markets, fear and deleveraging. Deleveraging leads to rapid devaluing of assets, because there are so few buyers relative to sellers. This will continue, in my humble opinion, for all of 2009 and 2010, though the biggest drop in the markets has occurred and we are approaching the floor in property markets in my view this year / right now.
2011 (World Cup Rugby Year for NZ) in my view is the year we will start to see it turn and 2012 will be a growth year. If I am correct in this, then we are halfway through this nasty patch and there is no hurry to do anything aggressive on the investment front.
Flood of Mortgagee Sales Cued with the Banks
I was told last month that the big 5 trading banks have 2500 properties cued for mortgagee sale, with 12,500 property law act notices cued behind those. (That's 15,000 properties on their way to be sold at mortgagee auction.) But the banks are being smart, and not dropping them all on the market at once, coordinating a release of them on a budget for each bank monthly to protect the market.
If this is true, this is very smart on the banks' part and I applaud them for not repeating the mistakes of the '87 and '97 recessions, where the banks drove the market down by flooding the markets with mortgagee sales.
Strangely the biggest villain I hear clients complaining about is BNZ - their name comes up a lot as a very aggressive banker if you get into trouble. On the positive side, I keep hearing ASB are great to their clients who are in trouble, working through their issues constructively.
Banking Horror & Happy Stories
If you have horror stories or happy stories about your bank, I would like to hear them. Email me at mg@gra.co.nz and tell me on a confidential basis.
Opportunity Knocks In Recession
Doom, gloom and continued financial assaults flowing out of America and the world are now so commonplace, they are losing their sting when reported. Relentless media focus has desensitised us, and we now find the extraordinary financial disasters ordinary.
With the shock of it all passing, life seems to be returning to the property markets in New Zealand with March 09's sales across the county beating any month in 2008. With good reason too – there is significant value to be gained by an informed property investor on the hunt and there is a resurgence in finance applications and activity in the market across NZ.
You might have caught the New Zealand Herald's article on affordability of housing recently, basically showing that for the first time since 2004 in many Auckland suburbs, rent now covers 100% of borrowing costs (looking at average rents over average rental incomes). And if you buy at a discount (hunt for a good deal), you can find property that pays for interest and all outgoings (rates, insurance, repairs and maintenance, management, etc) with 100% financing.
This is a function of property values falling, interest rates falling, and rents comparatively holding up. So if you go hunting at present, you can buy a property in Auckland (and around the country), 100% finance it and all cash costs are covered by rents. That means you get the tax refunds on top as a bonus, and the capital gains in the medium term for free!
In my view this winter will be filled with mortgagee sales by banks, bad weather and cold days. Investors tend to get depressed on cold wet days, and not turn up to the auctions. This winter then should reveal some real bargains on those cold wet days in auction houses, and don't be surprised if you bump into me at a few, - because in this market I am definitely a buyer and I recommend every household start to consider investing against the public mood.
The bargains purchased this year will look very good in 5 years and if you buy right, you will get a huge discount in this environment and positive cashflow all the way through at present.
Happy investing to you. Go ahead and Request an Interview if you would like a hand getting your taxation and finance arrangements in place with our asset planning team.
Finally, If you would like to read more articles to designed especially for business owners and investors please visit my blog.
Have a good month!
Matthew Gilligan
Director
© Gilligan Rowe & Associates LP
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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
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