Home » A Message For First Home Buyers – Warning. Reality Check Ahead.

A Message For First Home Buyers – Warning. Reality Check Ahead.

I scratch my head every time a first-home buyer gets into the media and paints her position as nothing more than a Dickensian victim; marginalised by society and grasping at straws.  Apparently, if newspapers and televisions are to be believed, half a million dollars will not get anyone a single house in Auckland.  Not one jot.    

Just last week, I sat through a Barfoot auction in the CBD and witnessed three houses being sold for less than $500,000.  No housing stock under half a million?  Think again. 

Investors Are Starting To Feel Like Roger Rabbit

Every now and then when there is no one else to pick on, FHBs and their media pals get together and have a good go at investors.  I get it.  Buying your first home is stressful and frustrating, someone has to be the punching bag.  I am happy to oblige and take it on the chin but persisting with landlord backlash like a dog with a bone and turning your back on a balanced argument just gets tiresome.  You risk turning your plight into nothing more than a good ol’ whinge.  

By heavy-handed inference, this particularly frustrated FHB believes price inflations are driven entirely by property investors who are running amok buying up Auckland carte blanche without a care of the world (or more specifically, capital gains tax).  She had been pipped to the post twice at auctions by people she believed to be investors. Funny.  Last time I checked, property investors don’t walk around with special badges or ceremonial headgears.  In their bedrooms perhaps but definitely not in auctions rooms.  At least not that I had seen.  

Who is really driving up Auckland prices?  Not property investors.  Investors are number-savvy and margin-conscious.  High purchase prices do nothing but eat into profit margins.  Successful investors who stick with the property market through thick and thin know to only buy below value.  Investors do not get into bidding wars.  The moment we sense someone is only willing to pay less for the property is the moment we realise our offer is too high and walk away.  In fact, show me a property investor who is happy to pay over-inflated prices and I will show you a fool.  

Just Because You Rent In Parnell Doesn’t Mean You Can Buy In Parnell

Auckland rents are low by international standards.  An underpriced rental market is at risk of breeding a generation of renters who grossly misalign housing expectation and housing affordability.  Being able to rent in Parnell is vastly different from being able to buy in Parnell.  

Let me be very clear.  First homes are not meant to be glamourous.  It is a place that gets you and your family onto the property ladder from which you can hopefully springboard towards a more solid financial future.  It is somewhere that is firstly within your affordable range, secondly acceptable for you in terms of living standards, and thirdly positions you in a way so that in a few years time you can upgrade to a better place.   

No houses to buy under $500K?  I am no statistician but a quick search on Trade Me tonight got me 5057 properties listed between $100K and $500K to consider.  Lowering the price ceiling to $400K just to be on the safe side got me 3837 listings, 2326 of which are listed under the $300K mark.  Pretty spoilt for choice don’t you think? 

Not convinced?  What if I get anecdotal?  When the boss and I were buying our first home, we spent months roaming around the Auckland inner city suburbs of Sandringham, Mt Albert, and New Windsor looking for a fee simple, full section, 3 bedroom house that has plenty of garden and a garage.     We eventually attended an auction of a property we weren’t even that interested in and got a huge slap-in-the-face when it sold for a price that could only be described as highway robbery.  Great.  we needed that.  We immediately relaxed some of our criteria and with the advice of some seasoned APIA property buyers, we bought our first home at another auction one week later.  There are still homes for first time buyers in Auckland.  I know because I just bought one.  

Is Capital Gains Tax A Cure-All?  

Going back to said FHB and her media advocate, a suggestion was made that the introduction of a capital gains tax may slow down the housing market and deter investors.  Let me say this, investors are not going to go away.  Investment is not confined to the elite few, and the desire of a secure financial future certainly has such universality that it transcends industry, socio-economic class system, and even culture.  If you too have access to money that will provide you some passive income, would you not invest?  Property investments, like all investments, are businesses.  What do business owners do when costs go up?  They pass the cost onto their customers, i.e. renters who happen to be FHBs.  The downstream effect of a CGT will surely make it even more difficult renters to save up for a first-home deposit.  

The Clock Is Ticking

If you think times are tough now, think again.  Right now, banks are still known to be lending up to 95% for some FHBs.  Men who are a lot smarter than I am are saying that the days of low interest rates are numbered.  If and when the Reserve Bank’s macro-prudential tools kick it, it will become even harder for FHBs to secure property funding.  Auckland’s house prices are stimulated by supply shortage, not by investors.  Prices will continue to rise despite FHB frustration.   If in your pursuit for a first home, you are still unwilling to lower your housing expectations then pretty soon home ownership will be an even more distant dream.  


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