Today we're going to talk about
why I'm still excited about property investing in 2022.
And we're going to do a quick SWOT analysis.
So SWOT analysis is strengths, weaknesses, opportunities and threats.
There's a lot of negative talk about property investing
and property investors in the media at the moment.
So what we want to do is to try and be objective as we can
and go through points one by one and assess
if we're still keen on property investing in 2022.
So starting with s, what's the strength of property investing?
Well, simply, there's a lack of really good alternatives
for investing unless you're more of a sophisticated investor.
Investing in stocks in a big way limits you to the capital you've got.
There's very little use of leverage.
Buying businesses is inherently more risky.
So cryptocurrency is another one.
You know, there's obvious risks there.
You wouldn't want to, most people
put all your eggs in one basket just in the crypto side of things.
So the lack of alternatives brings us back to property investing.
Property investing has proven its historical tangible.
It's easily understood, and it's consistent cash flow over a very,
very long time.
So property investing is strong, and that's buoyed by the fact
that there are other alternatives, are probably not for everyone.
There's still low supply in the New Zealand market,
especially in the main areas.
And even though there's RMA changes,
it's still going to take a long time for a lot of new houses to get built.
It's not so much that we're as short on land or short
on opportunity of places to build properties.
It's the labour shortage, and the labour shortage
in Australia becomes more obvious and pronounced.
Then a lot of the people that are building houses for us
in New Zealand
are going to be building houses over in Aussie
and that the labor shortage is going to get even tighter,
which makes it really great if you already own properties
or if you're looking to buy before that
hits us.
Now interest rates are going up, and some people would deem that
as like a risk or like a weakness of property investing.
And I would challenge that assumption because what's going to happen is
as interest rates go up, so they go from an average of 3% up
to say, 6% over the next year or so.
It doesn't really matter as long as you're focusing on cash flow
and what most investors on average are going to do is have to focus more on
cash flow because of the negative gearing being so strong as the rates go up.
What does that mean?
What does that lead to?
People are going to flood
probably more into the regions even more than they have already.
That inflates the prices up in those areas, which again
inflates prices up in the major areas.
If somebody's got 1,000,000 bucks to spend but they want it to cash flow
in a really strong way,
and they instead of looking in Auckland, they start looking in say Rotorua.
That demand and Rotorua does filter out
throughout the whole market and it pushes prices up everywhere.
Interest rates going up doesn't necessarily mean in the short medium term
that prices are going to go down, it actually even can push prices up,
because property investors
are actually still keen to invest, they just choose different areas.
Now, obviously, that's not all of the strings of property investment,
but if we move on to the weaknesses for 2022 property investing.
Now obviously there's been an economic impact because of what's been going on
in the last 18 months.
New Zealand economy is still performing well, relatively speaking
because of the hundred billion dollars
plus that's been pumped in by the government that was not expected.
Having said that, the economy might be a lot weaker next year
if these businesses that have gone into liquidation or receivership.
You know there's no new businesses to get started up, the economic impact
of having less money moving around and, you know, more money
coming in from tourism or education, our exports,
that generally does impact the housing market.
Whether that negative weighting coming in
will act against the strengths - time will tell.
Now, another weakness of property investing in 2022
is that over the last sort of ten years, the movement and data on inflation
and interest rates and all of the data points that we've come
to rely on to help project out into the future,
there's a lot more volatility and unexpected things happening,
for example, in inflation there was pretty relatively
low inflation for a long time and boom, it's just shut up.
Now the data that we're working off is often 3 - 6 months old,
so it's hard to make those decisions when there's a new trend line in there.
So a weakness of property investing in 2022, as you're often
having to make information off old data that may be changing.
What are the opportunities for property investing in 2022?
Inflation makes it harder for people to understand the nominal values
and to change prices accordingly.
So when inflation is, say, five, six, seven percent
it's really hard for people to figure out what things should actually be priced
in terms of replacement costs and in terms of their true nominal value.
And sometimes there's like arbitrage opportunity and we've seen
property investors in the past do really well in inflationary times,
even when interest rates are high because of the leveraged effect
that you're getting with property investing.
It's the same with opportunities
for debt to income ratios if they come in in a big way.
If the DTIs or debt to income ratio, start knocking other property investors
out of the market or even first home buyers, it is an opportunity
for established investors or the investors that are making a bit more money
to come into the market and start picking up deals in a less contested way.
If you're not earning that much money, debt to income does obviously impact you.
But if you are in a strong position, it is a great opportunity if they come in.
Now the last part of the SWOT analysis is the threats.
Threats to property investing next year are political instability.
Now there's been a lot of political unrest in the last sort of six
to twelve months.
You know, just with a new National leader coming in, I think that there's
going to be more political stability and more checks and balances
and the power struggle
will become more to the center.
Having said that, a lot, as the saying goes, can happen in a week with politics.
So politically, there's definitely a threat there
with instability and it's the same with social side of things.
There seems to be a lot of hate in the media against property investors
and about ambitious people that want to own more than one property.
So you just need to be careful there that the tide doesn't swing even further
towards having property investors having less rights and renters having even more.
And I'm all for fairness in that space, but define fair.
Now, one other curveball threat, for example, is let's say
we have really high inflation and the wage growth doesn't keep up with it.
Then in other parts of the world, we have seen rent controls being put into place.
Essentially, the government or the local body is telling you
how much you can charge for rent and how often you can increase it.
That does obviously impact values and about and returns.
So you just want to be mindful, you factor that in if you buy
a property expecting this amount of rent and increasing it regularly
and then something gets put on you that you can't.
Now, as always and even more important than normal
in the last five years, is going to be cash flow on your portfolio.
You really got to measure out what your cash flow is going to be
in certain circumstances and make sure that you're not forced to sell
when timing.
Not necessarily the best.
So focus on cash flow.
Y'know maybe the next few years is not going to be as strong
a period of capital gains as we've seen in the last ten years.
Having said that, this is a long term game
and your lack of better alternatives for your centralized investment
strategy does tend to push a lot of people into property.
So any questions or comments let me know below, I'd love to hear what you think
about what's going to happen next year.