Who do you believe?
Debate is raging over whether residential property is looking good or the bubble is about to burst. Which side of the argument do you believe?
Thursday, April 16th 1998, 12:00AM
The pros and cons of residential property investment are being hotly debated at present making it difficult for investors to decide what to do.On one side there are people such as Christchurch adviser Charles Drace, who has just published a book predicting the residential property bubble is about to burst.
Then there is Reserve Bank governor Don Brash. He has been on the subject for some time saying it was rational in the past for New Zealanders to invest in property and make gains because of high inflation.
To get into debt now, in a period non-existent inflation, to make money was showing signs of "irrational exuberance".
In the past investment in property was rational because of inflation, he says, the period of such gains "has come to an end now and I fear there may be tears".
On the other side ASB Bank economist Rozanna says that "some commentators have been scaremongering about the state of the residential property market in New Zealand."
She acknowledges the housing market is weak, and attributes that, largely, to the state of the economy.
The real risk is that property owners will be scared into selling, she says.
To add some brighter colours to her positive picture, Wozniak says investors have been able to protect themselves from interest rate rises by taking fixed term rates, plus she says the economy is improving and interest rates are due to fall.
Wozniak's note of caution is that those investors chasing double digit returns "will end up disappointed".
How can anyone make sense of all this?
Te Aroha-based adviser Ian Watson of law firm Gilchrist Burns and Johnston says many of the people who have been involved in this debate are pushing their own barrows.
He says if people really want to invest in residential property they can, by hunting out properties and doing their homework, find good investments.
"You can do it if you really want to," he says. "It's the advisers job to maximise return and minimise risk."
"Advisers have to undo the (potential) damage as much as they can."
That involves identifying all the specific risks including price and interest rate risk and those along with the rent, and the holding time.
He says it's unfair to generalise about residential property as the market is widely segmented and there are a large number of variables involved in making the right investment decision.
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