Ever been late to a gathering just to find out that you clearly missed the party? Nope, it wasn’t the Asti Spumante or the cheap cologne, you just got the timing wrong. A ‘property investment bull trap’ occurs when you’re too late to the party. You hear amazing things about the gains and experiences of others and you want in on that action, but by the time you get in, the market’s gone back to its normal, lacklustre state.
‘Now this isn’t right- this guy’s normally pretty optimistic about property I thought.’ Yes, but only in main city centres where there’s a proven long term bull market (uptrend). Most awesome cities (like Auckland) in good countries (like NZ), have been the beneficiary of cheap money and lose purchasing rules over the last two decades especially.
Let me also clear up something else – the biggest and baddest assumption you can make with property investment is that all markets are homogeneous – they’re not! Regional areas (ie not city areas) are a function of city areas. After Auckland does well, the rest of the country goes up too, but at a greater rate. Once Auckland flattens out a little (worst case that’s what happens), then the rest of the country could be hit pretty hard.
Allow me to pick on one of my favourite small cities in NZ – Hastings. I love it as it reminds me of my home town and if I had the choice (and all the money I needed), I would honestly be tempted to move down there. Hastings saw 20% growth in property values in the last 12 months – heck, what a party right!? Auckland grew, but not as much – you’d be tempted to buy in Hastings right? Well here’s the thing – long term, regional areas don’t rise as much as they do in the cities. They’re like a heartbeat on a slight upwards march with an occasional spike, then drop back down to normal levels.
Why? I’m not an expert in this but putting my best assumptions to work here, I’m going to blame the baby boomers. Sorry guys you’re lovely, but you’re a hamster being swallowed by a snake – you create bubbles everywhere you go! Take the 65-year-old couple who sell up in a nice area in Auckland, give some funds to the kids, buy a boat, caravan, and a nice home in Hastings with money in the bank – awesome right? Everyone’s happy until someone’s gammy hip ruins the party. The thing is, a town full of munted hips isn’t going to do any favours on the local health network and eventually, there may be a reversal back to the big smoke when medical needs dictate this.
5-10 years from now, or even sooner if there’s an economic correction, there’s going to be a catalyst event and then a flight to quality. The bullish signals of rising prices which trigger your latent FOMO could get you into trouble. By all means though, follow your parents down to Hastings you have my blessing, just don’t sell up in the big smoke!