Property investment is on the boil again thanks to low interest rates and rising property values. Underlying the price rises are high levels of net migration, low levels of new building and growing numbers of first home buyers tapping into KiwiSaver balances for their deposit. Auckland-based investors are taking advantage of the increased equity in their homes to buy properties in the Upper North Island, particularly in the Waikato and Bay of Plenty. Wellington, which has seen little change in property values since the Global Financial Crisis, is suddenly surging ahead and other areas are seeing growth too. From an investment point of view, property is looking good in comparison with other alternatives. The returns on fixed interest investments such as term deposits and bonds are the lowest they have been for decades and there is no sign that this will change any time soon. Worries about the Chinese economy continue to cause volatility in share markets around the world. On the other hand, property prices across the country increased by over 11% in the year to February according to Quotable Value statistics.
While property investment is looking increasingly attractive, it is not a game for novices. There are significant risks involved. Successful property investment requires research to identify the right location and specific property, a good understanding of the financial aspects including how to get a good return, the ability to negotiate a good purchase price and borrowing terms, knowledge of tenancy law and a whole host of other things. Basic concepts like being able to calculate the gross and net income yield on a rental property are essential to understand before making an investment. In a rising market, any fool can make money, but markets eventually turn and that is when the soundness of investment decisions is revealed.