Hindsight is the easiest way to identify a property bubble. But, the problem with hindsight is that it provides no protection for the present.
Economists like to theorise the events that lead to a property bubble. And to attempt avoiding one, they indicate that a market has peaked or is about to fall. The problem with the identification and avoidance of a property bubble is that you expect the participants in that market to act rationally. But when two of the most compelling human emotions are fear and greed, this is almost impossible.
So how do you avoid getting caught up in a property bubble?
Avoid speculation
That is, banking on short term capital gains. A key indicator of an overheated property market is the ease with which developers can sell off plans. This allows developers to lock in funding capital whilst leaving the buyer to take the punt. Beware. When the market turns, it can do so on a dime. Speculating on tomorrow’s market, especially for a quick buck, can be like gambling your fortune on roulette.
Think decades not years 
Taking a long-term view on property ensures you ride the property wave. Historically, the trend is a doubling of value every ten years. This doesn’t necessarily mean at a rate of 10% per year. Just look at Wellington. Our market has been relatively flat since the peak of 2007, with a recorded average growth of 26% since then. So, if you bought at the peak, ten years on you are unlikely to have a property worth double your purchase price. And god help you if you sold pre-August 2015 when it all kicked off. Time in the game provides the protection you need when investing, or paying off, large sums of money.
Good real estate is good real estate
It can be very tempting to chase quick gains by investing in new growth areas. In a hot market, outskirt suburbs and even smaller towns within commuting distance of major cities can experience rapid growth. It is these areas which are the first to flatten, and even drop, when a market begins to cool. Where possible, invest in areas which have a mix of owner occupiers in stable employment and a solid demand for rental property. These areas tend to be well located with good amenities. Investing in areas which have high demand, no matter the state of the market, ensures you maintain control over your investment strategy.
No recipe for gold
I’ve never been a fan of the ‘get rich quick’ schemes pitched by wealth creation companies. They tend to pop up when the market is active and fade into obscurity when it’s not. If they were worth their salt they would be around flat market or not. Seek independent advice from professionals who have nothing to gain by getting you on board.
The Wellington Market
The Wellington market is throwing up surprises on a weekly basis. Some quality real estate is slow to gather interest but will sell with multiple offers after an extended marketing period. This while other traditionally less desirable property is being snapped up. This trend seems to correlate well with the lower level of the market where enquiry and activity remains relatively strong. Overall, we have entered a much more predictable market with prices for standard housing stock stabilising. In saying that the days of outlying, jaw dropping offers are not over just yet.
Wellington Market Quick Facts:
This month Reinz have changed the terminology of the areas to now be consistent with the electoral wards. If you’d like a refresher on which areas are covered under which ward, please see below:
Average price sale by ward:
June Fun Facts:
On the 21st June it will be the shortest day of the year, referred to as June Solstice. We thought it would be ‘fun’ to look at the meaning of Solstice. Because, for example, did you know that world-wide, we don’t all change season’s on the same day?
- ‘Solstice’ (Latin: ‘solstitium’) means ‘sun-stopping’. The point on the horizon where the sun appears to rise and set, stops and reverses direction after this day.
- The June (June 21st this year) solstice is the Summer Solstice in the Northern Hemisphere and the Winter Solstice the Southern Hemisphere.
- Many countries use the date of the solstice as the change in their new season. In NZ we use the 1 June as the beginning of Winter, not solstice. Likewise we use the 1 December to mark the first day in summer, not summer solstice.
- One might think that since it is summer in the Northern Hemisphere, the Earth is closest to the Sun during the June Solstice. But it’s the opposite. The Earth is farthest from the Sun during this time of the year. It’s the earth’s tilt (see above pic) that creates the seasons as we know them.
Many people in NZ have a Winter solstice party or mid-winter Christmas to mark the event. We think it’s a great excuse for a party mid-winter, how about you?
Thanks for reading!
If you or anyone you know could benefit from a considered market assessment by Wellington’s only licensed agent and registered property valuer, please do not hesitate to call. We are always very happy to help.
