I can’t help but think that New Zealand property is a really good investment.  I read in the paper this morning that house prices had fallen around 5% over the last 12 months.  Now falling house prices is not good news but when you contrast a 5% fall in value over 12 months with the extreme loss in value of global share markets in a few short weeks, then you think it’s not that bad.

However I am not so stupid or naive to think that much greater falls in value of property won’t be around the corner if the world slips in to a 30’s style economic depression.  Let’s hope that things don’t get that bad.

But let us consider the fundamentals in the market at present.  Wealth has to be somewhere and most of it is either in property shares or cash.  Property has the advantage of being a tangible asset.  Demand is driven by a number of factors with population being one of the most significant.  New Zealand’s population is growing.

Another demand factor is the cost of credit.  Many economists are expecting that the Reserve Bank of New Zealand will drop the official cash rate by 1% in October.  Many retail fixed interest rates have fallen significantly in recent weeks and most are expecting that interest rates will continue to fall.

The alternative investments are ‘dodgy’ at best.  Although there may be share market bargains to be had, few would have the nerve to buy shares at this time.  And while you might be able to get your bank cash deposit guaranteed can you get the currencies value guaranteed?  At time of writing one New Zealand dollar buys 60cents US, 0.34 British pounds and 89 cents Australian.

The flip side of the falling dollar is the fact that we are an economy that makes most of its money through exports and tourism. Both of which benefit from weak currency.  We have no capital gains tax on property and good yields (I have found 10% net in recent weeks).  Furthermore we have a large expat population wondering where is a safe place to put their money.  After the September 11 crisis we saw a significant growth in population that created a large increase in demand for property.  I would not be at all surprised if we saw this happen again.

Sometimes living in an oasis on the edge of the earth with a tin pot economy is an advantage.

As always I am happy to respond to any questions on this article or anything in previous issues.  Send your questions to mortgages@nzij.co.nz