The ‘rate of increase of New Zealand property values is near zero’ QV tells us, or it’s ‘Midnight on the Property Clock’ as Landlords for Kiwi Property Investors put it. QV seems pretty sure that the market is tipping into a downward slide, ‘This time the signs of a slowdown are much more widespread’ QV June 2017. Okay, so what do you do when the market turns?
I was there in 2006, and with over 15 years hindsight, I suggest the three ‘R’s; Review, Recalculate and Reposition.
The clock is ticking, time to batten the hatches and consider your exposure. If the market crashes and you need to liquidate, how quickly can you shift your real estate stock? Are your properties saleable in a tight market; well-presented, well-maintained? Any major repairs coming up over the next 5-7 years? If you have rentals remember Insulation will be compulsory in all rental homes from 1 July 2019. This is the time to jettison superfluous ballast; if it is going to cost ‘more to maintain than its likely to gain’ time to let it go.
Stress-test your position – can you manage interest rates rising 1 – 2% or are you over-leveraged? Explore worst-case scenarios of retirement, redundancy, injury; do you have adequate mortgage protection insurance? Can you consolidate your position by reducing risk? Is it time to sell down and shift equity around? Talk to your bank or broker now about refinancing and locking in a good rate. Reducing risk by decreasing debt and increasing your equity percentage is a good strategy to weather any storm.
Future-proofing is critical in a turning market. Can you hold for another 7-9 years until the next high? Consider mitigating your risk by selling high-maintenance properties now, or downsize to a double-glazed well-insulated ‘lock up and leave’ property while freeing up equity. Why sell now, why not wait until spring you may ask? If the Reserve Bank has under-estimated inflationary pressure, the OCR may have to rise earlier than expected. The election in September may change things, or not?! In any case, best be prepared…
Over-exposed – Review
Over-leveraged – Recalculate
Not future-proofed – Reposition