Articles by Matthew Gilligan
Consequently, they went from purchasers in the market to reluctant sellers, as they (prudently) did not want to be in a position where they could not borrow any money and were completely equity locked, because this is dangerous. For instance, if you have a medical event and need urgent access to capital or have unexpected expenditure of a business or private nature, it is certainly not wise to be completely locked with your banks and unable to borrow any money. The new LVR rules had done exactly that to this family, and we are increasingly seeing this in the client base of property investors.
My observation is that the LVR rules did not particularly affect my clients in Auckland and across New Zealand at 80%, and when the rules changed from 80% to 70%, again they did not particularly affect investors in Auckland because they had sufficient equity to continue. They did start to chase investment in the regions, which was prudent and logical because the regions were cycling behind Auckland and were still able to be invested in at 80% (as opposed to Auckland's 70% restriction). Now, however, with 60% investment property lending restrictions across the entire country, including in and out of Auckland, it's a very different matter.The LVR restrictions are biting and are creating a withdrawal from property investment by many clients that I would characterise as habitual long-term property investors. This withdrawal of interest from mainstream investments (enforced by banking restrictions) must create some pull back in the market and leave more space for homeowners who can still get 80%. While homeowners will be delighted, and may indeed see some better buying in the next six months or so, I do expect the high immigration and tight supply conditions in the main centres to underpin asset values and curtail any slide in the market. I do not see any bubble bursting based on the phenomenal net underlying demand, but I certainly do see investors withdrawing from the market as these LVR rules start to pinch.
Whether we have met an early end to this cycle in 2016, or whether we see another year of muted growth to a peak in 2017, no one knows. With so much cash internationally seeking yield in a low interest rate environment, it is possible that the cycle could extend past 2017. In any event, if we see continued growth as we have in the last five years, it is inevitable that the Reserve Bank will stamp their feet harder and the LVR rules will become even tighter. Coupled with proposed hybrid income lending restrictions, I can only see the finance markets getting tighter and tighter, and this must slow house price inflation over the next couple of years.I will say to investors in closing that if these rules bite harder and longer than anticipated, it will be the quick and the dead in terms of getting your finance and capacity established with the banks. As the rules bite deeper house prices could fall, and if you leave it too long before getting your assets revalued and requalifying with the banks, you might find that you get coupled with an LVR at 60% and a fall in market price. My advice is therefore to revalue your assets in this environment while the market is still strong, and requalify with the banks with whatever your new LVR is, taking into account your latest valuations. This will give you the best chance to maintain the highest LVR position on the highest market values given the current conditions, versus the alternative which could be flattening or falling values with increasingly conservative valuers making it harder to get bank finance in the next couple of years.
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
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