Tony Mounce on Investment Property in Canterbury: An Introduction

It is a pleasure to be invited by Claire Wilson and Martin Evans to contribute to Canterbury Property Investor magazine, and give my views on investment in property in Canterbury for 2012 and 2013.

Over the past decade, I have addressed several meetings, and also sponsored a national conference on property investment at the Hotel Grand Chancellor (poor thing) when I was a Senior Mortgage Manager at the BNZ.

During my 34 years at the BNZ I met many of the members of the Canterbury Property Investors association, and approved loans to help grow their portfolios. Although I no longer work for the BNZ, I do maintain close ties and continue to work with many of my old clients – many of whom I now consider friends.

I have managed the full gambit of investors, from the person buying their first rental, to some of the largest landlords in Canterbury. Property investment is something I have remained passionate about since purchasing my first investment property in 1983.

The three years since I left the BNZ to set up my own business have certainly been an experience. We survived all that the elements threw at us and have grown to a team of nine. Unfortunately, my first office, in Victoria St, didn’t survive, but we are now well established in our new offices in Rotherham St, Riccarton, which are wonderful.

This year provided great opportunity for local investors, as yields increased significantly and, in some instances, by almost too much. I do see opportunities continuing at this level for at least the next five years and beyond as Christchurch is re-built.

The investment landscape has certainly changed, with a whole raft of new factors to consider. Who in Auckland would know what I am talking about when I have a very serious conversation with an investor about land zoning in Canterbury – Green/Blue, Green/Yellow, Green/Grey (the new gold), White, Red and Orange (have I missed any?!). Also, the merits of having full replacement insurance as opposed to sum insured or none at all! Not to mention builders’ risk insurance and full replacement insurance at the end of a build. All these factors weren’t previously as important as they are now. It is a minefield out there. We work with it each day and have built up a sound knowledge of these important aspects of property purchase in the Canterbury region.

Out of adversity comes opportunity, and competent investors have taken it all in their stride. I have seen some of the large investors re-enter the market after a three-to-five-year break and that gives me confidence to suggest that the property investment market will remain sound into 2013. When looking at opportunities, remember that yield is most important and outweighs capital growth by a long shot – especially for young investors. Perhaps capital growth is more important to the mature investor, but cashflow is king – and the key to building a sustainable investment portfolio. Human beings pay mortgages, not trusts, LTC’s, LAQC’s and trading companies, so no matter how you are structured, always buy for yield first and growth second.

Looking into my crystal ball, I see opportunities presented to investors in 2012 being enhanced in 2013 as more and more trades and support people come to the Canterbury region. I had one of my clients lease a nice but standard Hoon Hay property for six months at $1,000 per week! Amazing for

a $600,000 residential home. I know a lot of you will have similar stories and I imagine this type of rental return will only escalate in the short- to mid-term.

Banks are becoming more and more accommodating and the competition for business is very evident in the investment field, with some fantastic packages being offered. While I never would have admitted this when at the BNZ, shopping around through a broker really does make sense. At the very least, it puts your own bank on notice that they are vulnerable to losing your business and they must offer you their very best deal straight off – none of these silly Dutch auctions!

The bank rule books are being used now more as guidelines and are not sacrosanct like they were 18 months ago. The banks are flush with funds and have to lend these funds out to provide the return that their shareholders expect.

While a lot of people bemoan the profitability of the banking system in New Zealand, it certainly has been a major factor in keeping our financial system strong. Who would have thought that we could now borrow money for as little as 4.75%! It only seems like yesterday that I was paying 9.79% fixed for two years – and that was as a staff member!

For relatively new investors, here is a brief case study of a client who made superb progress this year: “Gary” came to me about 12 months ago with excellent equity in the family home. As a tradesman he is very handy but his income is relatively modest. His idea was the old tried-and-true ‘buy the worst house in the best street’, with the aim to renovate and rent it out for a healthy yield – 8.5% being the goal. After just one year he managed to leverage his equity to obtain four more rentals, all in the north-west of the city. Not only does he have a very satisfactory yield, but he also has a ‘double whammy’ in significant capital growth from the added value to Green/Grey properties.

I would be absolutely delighted to discuss your own circumstances at any time, to see if I can help you develop your road map to successful property investment.

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