Articles by Matthew Gilligan
As I write, interest rates are rising and property values are falling. While for many, all they can see is unending doom and gloom, in this article I take a closer look at what it really means for property investors.
Firstly, we’ve seen this all before, although admittedly it has been a while since the last downturn. Increasing interest rates and decreasing property prices are part of the typical cycle that the property market goes through – boom, downturn, bust, recovery, and back to boom again.
However, in a downturn/bust phase, people start to become alarmed, foreseeing a market that will keep going down and never recover (and this is typically fuelled by negative sentiment in the media). The trouble is, everyone tends to look short term. I've looked back over 45 years in New Zealand housing and can’t see a single correction that didn't fully recover to former peak value within 5 to 7 years. So the doom and gloom phase tends to be fairly short lived in the grand scheme of things, and over the long term, property values continue to rise.
What has happened in the past, and what I expect to see happen again this time, is that as interest rates go up, people will panic and sell. Or, if they are highly geared and tight for cash flow, some will be forced sellers. However, as the saying goes, out of adversity comes opportunity, and some of the best deals in housing get done in such environments. But you need to keep a cool head while everyone else around you is having conniptions.
Much of the current pressure on property owners comes from imprudent tax rules, including loss ringfencing, interest non deduction, and the 10-year bright-line rule. (You can read more about these tax rules on our Tax Changes Resources webpage.) Of course tax rules will likely change in 2024 if we get a change of government (both National and Act have said they will repeal interest non deduction rules, for a start). It will be interesting to see what the Nats do if it's their turn in government.
On top of unhelpful tax rules, we have a Reserve Bank governor who oversteers the economy, reacting violently to market conditions (e.g. lowering interest rates way too far in response to Covid, and is no doubt now in the process of increasing them too fast and too high in an attempt to curb inflation). As I said in my July 2022 article:
Waving the flag of inflation and monetary policy, this RB and the Government will (in the next 18 months) destroy the lives of many fledgling homeowners, as interest rates skyrocket from 2% to the 6s and possibly 7%+ range. Could this government and RB have set these people up to fail more, having been enticed with low rates and loose credit, and then smashed with rapid increases? It’s not the banks’ fault; it’s erratic governance from the RB. Give it six months, and nearly all the short-term fixed rate agreements will have expired, and the pressure will be peaking.
In my view, we find ourselves in such a mess because the government changed the Reserve Bank’s mandate to look at things traditionally managed by politicians. Climate change, employment, and housing volatility are now on the Reserve Bank’s agenda – and these policies can conflict with inflation policies. It’s little wonder, given how close Adrian Orr and Grant Robertson appear to be, that our RB governor was in Zurich two weeks ago giving a speech describing the RB as Tane Mahuta – legislation being the roots, the sap being the money the RB prints, the trunk being payment systems allowing the money to flow to the branches which represent financial institutions. Does this woke narrative have a relevance in international banking? Is this serving New Zealand’s reputation as a modern stable banking environment, or making us look like a an economy under siege by ideologues? I would prefer he became famous for his focus on banking and inflation, than being the most woke RB governor in the world.
(You can read my full article here: https://www.gra.co.nz/articles-by-matthew-gilligan/property-market-the-labour-government-the-reserve-bank)
Hi Salesh, I just wanted to send you an email on behalf of GRA to say how fantastic we have found your company to date. As you know, Ben and I joined GRA a couple of months ago and have just found you so amazingly helpful in getting our new property set up correctly and sorted out. We have what I would consider a rather complicated structure as a result and it’s a fantastic feeling to know that we are getting everything done in the best way possible. We have just had approval to put a minor dwelling on the property which will make a massive difference in terms of cash flow and obviously value, something we would never have even thought of without GRA and which we are very excited about. During the buying process we attended a seminar with Matthew and from the outset thought he was fab. We therein signed up for property school and found this nothing short of fantastic. The content was relevant, up to date and comprehensive, but more importantly it was taught in a way that we could actually understand and really get value out of. I wanted to mention also, that everybody GRA have recommended to us has been just so efficient and absolute masters at what they do. A wonderful network of people that we feel very lucky to now be able to call on. From Kris Pederson and Bryan Rist who put our mortgage together to the insurance guys they then referred us to, I’m super impressed. Within GRA, Ellery has probably turned things around for us faster than I’ve ever known before, something which we appreciated so very much when it came to crunch time. She’s always a pleasure to deal with and again, we’re stoked. We’ve just settled on the property today and are about to go and get the keys. I’m pretty pumped and hence this email is probably rather excitable. So, a massive thank you to you Salesh, the partners for such a fabulous 6 weeks at property school and everyone at GRA for their help. May this be the start of our property empire. Thanks again, - A & B - July 2015
Investing in residential property?
If you're investing in residential property, seeking to maximise your ability to succeed and minimise risk, then this is a 'must read'.
Matthew Gilligan provides a fresh look at residential property investment from an experienced investor’s viewpoint. Written in easy to understand language and including many case studies, Matthew explains the ins and outs of successful property investment.
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