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Articles by Salesh Chand

Salesh Chand

Buying and selling property in the 2018 market

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With a cooler Auckland property market, what should buyers and sellers be doing to maximise their chances of success? Sellers obviously want to get the highest price possible, while buyers (especially investors who are focused on the numbers) want the opposite. Funnily enough, auctions can work well for both. 

Sellers
There are a lot of conditional buyers in the market at present, but I still think auction is a good marketing strategy. If the property doesn’t reach reserve price, you will often find conditional buyers afterwards who can offer more. To illustrate, I recently took a property to auction but the bidding did not reach the reserve of $700k, so it was passed in. However, shortly afterwards a conditional buyer offered $761k for it, subject to finance. Their finance was approved and the property was sold, leaving both of us happy with the outcome.

Banks are being harsh on borrowers at the moment, making it harder for them to get their finance preapproved, and the approval process is taking longer (10–15 days, rather than the five we have been used to). Before approving a loan, banks require a building report, LIM report and an undertaking that any illegal renovations will be removed by a registered builder. Therefore, buyers will only be able to obtain finance once the bank has approved a specific property. 

For many buyers, it is not cost effective to fork out fees for reports on properties they have no guarantee of winning at auction, so they need to make their offers conditional upon finance. This, of course, means they are unable to bid at auction (because if you win the auction your agreement is unconditional). However, they are in a good position to negotiate if a property is passed in and, as in the example above, this can work out well for the seller. 

Buyers
At present, there is some really good subdivision stock available in the Auckland market, which you can potentially buy for a good discount off the 2016-17 price, creating instant equity. In 2016-17, the market was peaking and many properties were selling at high prices, i.e. this was at the top of the property cycle period. 

The prices of properties are not currently dropping but instead are stabilising as a result of harsher LVR rules and with public perception that foreign buyers will be forced out of the market.  If you are at the right place at the right time, you will be able to buy a property at a realistic price in this market, resulting in instant equity. To be able to identify the bargains, you need to go to auctions and educate yourself in the areas you are looking at investing or buying your first home in. Research and understand the zoning for properties under the Auckland Unitary Plan – many single sites can be subdivided into multiple lots which can provide upside for you. (You can learn more about subdividing and development at GRA's Property School, or by talking to one of our property consultants.)

Although auctions can work well for sellers, as outlined above, they can also result in good outcomes for buyers. Firstly, by attending auctions, you will get a good handle on what prices properties are selling for in your area, which allows you to identify good deals when they appear.  Secondly, if a property is passed in at auction there may be an opportunity to negotiate a discounted price with the seller, especially if they want to sell quickly (e.g. they are under financial pressure, have a deadline, or they believe the market is dropping and want to get out fast). 

Summary
Auctions in the current property market can provide good outcomes for both buyers and sellers. Although the Auckland market has cooled, and some people are becoming more fearful, sellers can still get good prices for their properties (especially if they are willing to negotiate with conditional buyers after the auction). Additionally, there are opportunities for buyers to negotiate and create instant equity, particularly with vendors who are keen to exit the market or who don’t recognise the potential in their properties.


Salesh Chand
signed
Salesh Chand
Partner/Business Advisory 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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