Beware Major property markets in the world can make or break your New Zealand property portfolio

Posted on Monday, June 25 2012

Today’s global financial system is much more inter-dependent than it has ever been. What started out as the Subprime Crisis in America has turned out to be the Global Financial Crisis (GFC). This resulted in markets crashing all over the world. In order to save the global financial system from total mayhem, the US government justified bailing out large American banks. And now, here comes the latest European Sovereign Debt Crisis (ESDS). With the ESDS, we have seen troubled European countries like Portugal, Ireland, Italy, Greece, and Spain (given nickname, the PIIGS) needing bail outs. Ultimately, this is to protect the lenders from going under, which are mainly the wealthy German banks. The Kiwis may be somewhat isolated from the rest of the world and feel fortunate to have Australia as its main trading partner. However, its’ geographical location and its agricultural based economy can only stand so much pressure from the global economy. Ongoing issues with the American and European economy will ultimately takes its toll on the Asian market, specifically China, and the NZ market. With the possible reality of the bubble bursting in China’s real estate market and with the slowdown of its economy, the world has a lot to be worried about.

The New Zealand Property Market has seen a price decline of only around 6-7% during the downturn. The USA market, on the other hand, has seen house prices drop by as much as 33% from its peak. So, it seems that NZ property is well insulated from a global market downturn. Nevertheless, some might argue that the NZ market has not really been tested like the major markets around the world. With the underlying issues of cheap credit fueling growth and trade imbalances in the global economy, there will be many more possible “tests” for the NZ property market. No one can truly predict the future and thankfully, no one has to in order to be a successful investor. You only need to take advantage of this knowledge and plan your investing so that you will benefit in all market conditions. So let’s look at a couple of possible scenario for the next 5 years:

Scenario 1: The whole world gets out of the mess with more cheap credit. The Chinese market does not burst. There is a massive commodity and asset-price inflation (another bubble in the prices of gold, oil, stock, and real estate). Contrarily, all major currencies are deeply devalued.
In this scenario, the property market around the world will rally up. However, the strongest capital appreciation will be in countries where house prices has already hit rock bottom such as America. The growth will be somewhat limited in countries where housing affordability is already at its lowest, such as the NZ and Australian property markets.
Outcome: USA – High Growth. NZ – Low to Medium Growth.

Scenario 2: The whole world faces challenging times when the Chinese economy slows down, and its housing bubble pops. We will see a major slow down in the world economy. The Australian and NZ economy will be negatively affected and this will translate into another decline in house prices as even fewer families will be able to afford to buy their own home. The American property market will see house prices stagnate but it will hardly see any fluctuations as there is not much room for the house prices to go down any further.
Outcome: USA – stagnate house price with very limited decline. NZ – stagnate house price with a possible major correction.

Therefore, while New Zealand’s real estate market has proven to be very resilient to a downturn, successful investors should look into diversifying their asset base. It would be prudent to start researching on investing in American real estate. If there is a hyper asset price inflation in the US, there will be a huge possibility of very high growth. Furthermore, the US real estate can provide a safety cushion in the case of a global panic since home prices are already at its all-time low. In summary, when market is already at its worst, there is a lot to gain and very little to lose.


America property Investment for New Zealanders




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Expert's Bio

Chayot Ing-aram

Chayot is the co-founder of Property4Prosperity, Inc. He lives and breathes property investing. He received his BBS with Honours and Master in Finance from Massey University. He has been featured in one of New Zealand’s bestselling property investing books, interviewed in New Zealand Property Investor Magazine, and worked in the Committee for the local Property Investors' Association. He is currently residing in L.A., California, where Property4Prosperity, Inc.’s headquarter is located.

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