move up slowly. But when the sentiment turns negative the
market suddenly nose dives. This is exactly what we are
witnessing today. Share, commodities and property markets
around the world have taken a beating. Media has gone on an
over drive. There is so much negativity all around that the
voice of rationality has shut down. As real estate agents
our phones have stopped ringing. Even the fancy coloured
ads on the front page of the Herald evokes no response. I
think it is the best time for us agents to go on a fishing
holiday. Non of our clients will miss us anyway!
This breather has given me time to think and reflect. A
little research has shown that reality is a lot different
from perception of the market. The slump is a small bump
and we are NOT headed for a market crash because of the
following insulating factors that are in play in our
economy.
1/ High Job Security and a Tight Labour Market: An extra
403,000 since 1998 has reduced unemployment from 6% to
3.4%.
People have confidence buying a home or paying the Mortgage
when they know that even if they lose their job this week,
they can have another one without any hassle next week
2/ Strong Wages Growth: The tight labour market has meant
staff wages and salary payments have increased in recent
years at healthy rates and are likely to do so. Increases
in income create increases in Mortgage servicing ability.
3/ The Mother of All Fiscal Easing's: The Labour government
is sitting on billion dollar surpluses and is looking down
the barrel of a significant election defeat. Michael Cullen
has already signaled he will be releasing tax cuts, there is
no doubt many other benefits will be thrust upon us all in
the hope it will get us to turn insane and vote Labour.
4/ Dairy Industry Boom: Millions of extra dollars is
pouring into the diary industry and that money will flow to
the greater economy and have a stabilizing effect
5/ NZ pulled along by China's Boom: China's economic boom
is having a direct effect on NZ as the look to us to supply
an increasing range of exports to meet there Massive growing
population.
6/ Infrastructure Catch Up: NZ is embarking on a multi year
infrastructure catchup which will flow significant funds
into the economy again insulating it. Talk has already
emerged of electricity cuts this winter and huge investment
in other areas of infrastructure.
7/ The Fed in the US has instigated Massive wholesale
Interest rate cuts: This has stabilized the US economy and
will mean NZ banks can access cheaper fixed rate Mortgages.
The signs displayed in previous NZ economic downturns are
not present today and the factors above coupled with a host
of others is likely in the view of many respected experts to
stabilize the housing market and insulate it from large
falls. Commercial property market gets affected by the
market sentiment but is a lot different from the
residential property cycle.
The sub-prime crises in the US has started affecting our
perception of reality whether it is right or wrong. They
say if the perception is allowed to continue for long it
becomes a reality. Media thrives on selling on our fears
and rationality has takes a back seat for the moment.
Should I go fishing? No way. I think periods of
readjustment like the present one creates great
opportunities. I bought two properties in the last two
months. Both giving returns of over 10%. In fact the one I
purchased in Auckland will give me a return of over 12%.
Both these opportunities were created because of the market
sentiment. I had no competitors and I could buy them at a
discount.
Will I stop buying. Definitely no. I will continue buying
with a strict eye on my cash flow. Anyone who has played
Robert Kyosaki's Cash Flow game or the Hybrid Property game
will realize that one has to continue buying assets in the
down phase of the market to grow rich. I know many will say
that we will start buying when the market bottoms out in the
next couple of months. But unfortunately no one has a
crystal ball to predict the right time. According to me the
current market presents one of the biggest buying
opportunities. There is virtually no competition in the
market. You can go to an auction and will find that you are
the only bidder. Nothing can be better than that. You are
your only competition. The big question is can you overcome
your own competition.
Kind regards
COLIN KUMAR
Commercial/Industrial
Barfoot & Thompson Commercial
m. 027 684 1114 | p. 09 358 0989 | f. 09 358 4048
PO Box 1798 . Shortland Street . Auckland City
c.kumar@barfoot.co.nz | www.barfoot.co.nz
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