Top six questions buyers have about COVID-19 market

Thursday 23 Apr 2020

Here are six of the most common questions that property buyers and investors are asking at the moment as we all come to terms with the social and economic impact of the coronavirus.

Is it a good time to purchase an investment property?

Whenever you can see that the numbers are working for you is a good time to invest. However, sometimes we get caught up in the belief that we have to buy at the best time. And timing the market is always tricky. It should also be noted that you don’t have to buy at the bottom of the market to make money or get a good deal. You might think property will get cheaper, but what about rents? Isn’t there speculation about tenants struggling to make payments and their rents dropping to ease the pain? So, consider more than merely the price when making your assessment.

Your investment strategy is critical in answering this question. A long-term view is the most sensible as property can double in value over a seven to ten-year period. And you should be looking at the surrounding area of a target property, taking into consideration transport, access to schools and universities. Your agent will be able to give you great local advice on this.

If you want to flip a property, you’ll need a good crystal ball and perhaps no small measure of luck. So, think long term, do your sums and then make your move.

Why not just see where the market goes?

Picking the perfect time to enter a market is a tricky science and there are volumes of academia, mostly based on stock market dynamics, that suggest you’ll almost certainly get it wrong. You either go too early, and prices keep going down; or, you’re late and you miss the cream.

Besides, the New Zealand market has performed incredibly strongly in the last 12 months with its median price rising almost 14%. So, while we are seeing a dip in values right now, we think the market is resilient and the dip more like a blip once Level 4 restrictions are lifted.

Consider your fiscal position, your long-term investment strategy, and talk to your local agents about good buying opportunities. This crisis won’t last forever and confidence will return.

Should I cash out on my home now, and come back into the market later?

No. Definitely not. This is a high-risk strategy for the reasons cited for the previous question. Don’t play roulette with your family home. If you’re worried about repayments, talk to your bank or financial adviser.

Will there be a rush of rental vacancies as money gets tight?

It’s unlikely. There is work to be done between some landlords and tenants so rents that are paid. The government has given a number of protections for tenants but the instances of failing to pay are few across New Zealand.

Rentals in cities have been tight, and while it might ease, there won’t be a glut of rental property sitting empty. You’ll see those you rent on Airbnb come into the long-term rental market, but they’ll not be in sufficient number to influence vacancies volumes and rental prices.

What’s happening with auctions and the prices being achieved?

Auctions have moved online, and are not hampered by the fact no one is making bids in front of a crowd of nosy neighbours. There are some emerging auction and sales negotiation platforms, that will ensure real estate auctions continue.

The over-riding influence is the economic disruption from COVID-19. Early signs suggest prices are holding up well. Volumes are down but scarcity starts to support price levels.

Positive influences that have already emerged include stock market investors moving their cash from equities to homes and the 1% cash rate.

How should I deal with developers?

Just as you did before: step forward and negotiate. Many potential buyers will be backing off right now. That gives you the chance to strike a deal that works for you. You are in a position of power because of the current uncertainty surrounding the economy, and the fact the developer has committed millions of dollars to their project.

In truth, you’re always in a position of power because you can walk away with your money. Remember, though, a purchase should be considered a long-term commitment, so don’t fixate on what’s happening today. The COVID-19 crisis will end. The economy will open up and, while life may change in various ways, the property market will always transact.