With a clear-headed approach that takes advantage of the tools available to us right now, Kiwis who own their own home and/or investment properties can protect those assets through the current uncertainty and the downturn that is expected to follow, says Founder of Propellor Property Investments Nikki Connors
I have experienced financial disaster and the loss of my home, and there’s no way I want any other New Zealander to be in that situation as a result of our current national crisis or any other circumstance.
Here are the key tips to keep in mind:
1. Keep calm and stick to your plan.
There is no need to panic, because there is a lot working in the favour of property owners and investors. Whether this lockdown ends after four weeks or goes on longer, interest rates have never been so low and the government is working hard to support business owners and workers. The wage subsidy has been brilliant, and many of us are not on a cliff where we have to panic and make rash decisions. Whether for owner-occupied or rental properties, there are options. Things will become clearer over the coming days, so sit tight and don’t make any big calls just yet.
2. Check the source
Right now we’re all having to be careful about where and when we get our news – not just to manage our mental health against the daily onslaught of numbers and warnings, but also to make sure the information we are getting is sound and accurate.
It’s the same in the property sector. At times like these a lot of opportunists and fly-by-nighters can come out of the woodwork, trying to take advantage of people’s worry. Don’t take advice from or work with just anyone, but vet them first. When you are getting advice or consultation, seek out credible, reputable companies that have been in the property market for a long time and seen upswings and downturns – both financial and as a result of natural disasters – and guided people steadily through them all. It is not a time to cut corners; for most people, property is the major investment they will ever make, so the quality of advice has to reflect that.
3. Think carefully before jumping into a mortgage holiday . . .
All the banks are offering customers a deferment on their mortgages, but be careful about this. I would advise only applying for it if you really have to, and do so with full awareness of what it means for you long-term. It’s not a free lunch; banks are helping but they are still in this game to make money.
How mortgage deferments work in simple terms is you won’t have to pay the principle for the length of your agreed mortgage holiday but will still accumulate interest at your usual rate, and this will have to be paid back at a later stage. Depending on the size of your mortgage and the length of your holiday, this could make a difference of thousands of dollars and prolong the life of your mortgage. If you proceed with a holiday, understand what you’re getting into.
4. . . . but consider otherwise altering your debt facilities or terms.
There are good options to control your property outgoings in the current environment, such as refinancing down to a lower rate or switching to an interest-only facility – and investment properties should be interest-only in most cases anyway. Crunching the numbers, the average mortgage in New Zealand is $300,000 with an interest rate of 3%, so annual interest of $9,000 amounts to $173 a week. The wage subsidy of $585 per week before tax lets people with an average mortgage still have something left over.
5. Property remains a solid asset class.
When all this is over, there is still going to be a chronic need for housing, and construction will start to rebound. At Propellor we recommend investments in property that is either new or off-the-plan, and we expect to see an extra three- to six-month delay in the completion of properties that were in progress before the lockdown.
This is not inherently a bad thing. Buying off-the-plan at the moment is a great option for investors because by the time the property is built we would expect to be into the economic recovery phase. Moreover, property as an asset class is still sound, and with stock markets having taken a big hit around the world in recent weeks, people will be moving away from that class and looking for something more tangible. The advice always holds, however, to not put all your eggs in one basket and rely on any one form of investment – not even property.
6. Consider the other party in your property relationship.
As a property investment company we believe landlords and tenants both have rights in a shared property relationship and there needs to be mutual respect and an understanding of each other’s position. It is a symbiotic relationship. There are some arguments emerging from tenants that if landlords don’t have to pay – because of mortgage holidays – the tenant shouldn’t have to pay rent. For the reasons I explained above, that view would be unfair.
It is time for measured, timely decisions and a humane and sympathetic approach. We are working to make sure everyone can win in this situation.
7. There will never be a better time for research and education.
In the first week of national lockdown we fielded a record number of enquiries from New Zealand owners and would-be investors, and attendance of our web seminars has been skyrocketing. The questions were coming so thick and fast that we put together the propertyhelpline.co.nz site and 0800 number as resources for property owners, investors and tenants under lockdown and looking ahead to the low economic period that will likely follow the lifting of Alert Level 4 restrictions.
The theme is about help – how do you keep your home and any investment property and do so in a way that doesn’t cost you more than absolutely necessary. I expect this research activity to increase considerably as people have time to do their homework and consider their future plans around property without the daily distractions they usually have.
As a company working with property investors we have been through the Canterbury earthquakes when people had lost their homes and were concerned about their jobs. We worked with our clients and got them through that, and did the same through the GFC, which was a different kind of maze but still needed a strategy to keep people in ownership of their home and investment property. Other than maintaining health of themselves and loved ones, keeping a home is anyone’s greatest need, and we are dedicated to doing what we can to help alleviate stress for New Zealanders at this time.
For an up-to-date list of Q&As for property owners, investors and tenants in the lockdown, go to propertyhelpline.co.nz or call 0800 587 038.
Nikki Connors is the founder of Propellor Property Investments, the 10-year-old residential property investment company; Metropolis Design, which designs, sources and assembles high-quality but affordable furniture packs and items for residences; Propellor Proportional Ownership, the new shared ownership investment programme for New Zealanders who want to get on the property ladder or expand their portfolio; and PropellorFirst, which is helping people into their first home.
Nikki has worked in advertising, film, television and publishing, created several start-up companies, and landed on property investment as the key to her personal and professional salvation. Nikki has the longevity in the sector, having been through multiple property cycles as an owner, investor, consultant and company owner. She now devotes her working life to paying it forward; it is her mission to help others enjoy a better life — both now and in retirement — through investing in property.