Last month, the Reserve Bank dropped the Official Cash Rate (OCR) to 1 percent. On 25 September, it held at that rate but the commentators are saying another cut could be in the offing. If you rely on bank term deposits for your income, this is not good news.
Effectively, it’s costing you to keep your money in the bank, by the time you pay tax on what interest you earn and bank fees. Savvy investors know it’s best to spread investments, but with a volatile sharemarket and poor bank returns, there is one investment that is looking bright – real estate.
Reasons to invest in property include:
– Our growing population. Immigration has seen New Zealand’s population soar, and while the Government wants to limit immigration, we still need to import labour to fill our skills gaps. Marlborough is now classified as a medium growth area. It’s expected that an extra 3060 seasonal workers will be needed by next year. This has a very real effect on the property market.
– The record low interest rates allow investors to enter or expand on their property investments more easily. This combines with the high demand for rental properties to make real estate a highly attractive option.
– The real estate market fluctuates, and if you’ve done your sums, have allowed for interest rate increases and a variable market, then property is a sound, conservative investment. The trend is, despite fluctuations, still moving up and likely to remain so for the long term.
– The Government’s changes to the loan-to-value ratio means you now need 30 percent (or more) deposit for a rental property, which is 5 percent less than previously required.
– New Zealand is short of houses and demand for both rentals and new builds is high.
Whether you take up the option of investing in existing housing for rentals, or decide to go for building and selling a new property, or add a ‘granny flat’ to your existing home to rent out, the opportunity is there to make a good return on your investment for the long term.
And, whether you are looking to buy or sell in a period of increased or limited supply and/or demand, remember that property investment on the whole is sound, as land is a finite resource.
[Written September 2019]